Regulatory developments have been a primary driver for increased scrutiny of valuation methodologies for the range of instruments on banks’ trading books. Chief amongst these directives has been the Basel Committee on Banking Supervision’s (BCBS) Minimum Capital Requirements for Market Risk, also known as the Fundamental Review of the Trading Book (FRTB).
Regulators and auditors are asking more questions around the quality of data employed to generate instrument level valuations used in the Independent Price Verification (IPV) process. To provide further insight into the evolving requirements, we review the role of consensus data for valuations, explore how regulatory imperatives driven by FRTB have evolved to present banks with greater requirements for veracity in their valuation processes, and discuss how emerging techniques in enhanced market price consensus formation could potentially drive greater interest from the bank community for consensus-driven analytics.
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