On 14 January 2019, the Basel Committee on Banking Supervision (BCBS) issued its final ‘minimum standards for market risk capital requirements’, often referred to as the Fundamental Review of the Trading Book (FRTB). The new requirements propose material changes to the way banks determine the capital required to support their trading activities. 

The newly proposed framework will require a significant overhaul to banks’ current internal systems, processes and infrastructure. In addition, FRTB will require extensive enhancements in data and analytics, infrastructure and systems for trading desk approval processes, model governance, ongoing P&L attribution and more granular reporting requirements.

The Hong Kong Monetary Authority (HKMA) published a circular on 17 January 2019 and is expecting to closely follow the BCBS standards. The HKMA plans to align the local implementation with the latest BCBS timetable, and issue a consultation paper in the second quarter of 2019. The HKMA has urged all locally incorporated Authorized Institutions to start working on their firm-specific FRTB implementation within 2019. 

This client update provides an overview of the new FRTB requirements, and practical steps for banks to prepare for the implementation of FRTB in Hong Kong towards the go-live date (January 2022).