Excelian Luxoft supports bank with FRTB compliance programme

18 October 2017 Consultancy.uk 6 min. read

In 2019, banks will have to report under the new FRTB standards. The FRTB, short for the ‘Fundamental Review of the Trading Book’, was introduced by the Basel Committee to address the shortcomings of the current market risk capital framework (also known as Basel 2.5) as well as design a minimum capital standard for market risk to be more uniformly applied across jurisdictions. FRTB projects are already well underway – Christian Marshall and Anthony Hammond, both Directors at financial services consultancy Excelian Luxoft, reflect on how they helped a bank kick-start its transition to compliance. 

Can you start by giving us an overview of the project and its drivers?

Christian Marshall: “The project was driven by the need to replace a legacy platform that was many years past its end of life. The bank also had to meet its FRTB obligations and to ensure that these two requirements were met efficiently.”

Anthony Hammond: “The bank already had to replace all their day to day trading systems, which was a major initiative, but also needed to do something light and low cost to get FRTB live, meet FRTB requirements, and provide an excellent pathway to further strategic delivery.” 

Christian Marshall: “We had already delivered a proof of concept for integrating proprietary analytics into Murex and the bank had made the strategic decision to proceed with Murex software, but it still required assistance with pre-scoping, functional design and Target Operating before moving into the build and delivery phases. So, the bank wanted our help.”

Excelian supports a bank with FRTB compliance programme

What were the key challenges the bank was facing?

Anthony Hammond: “To become FRTB compliant, the key element was the aligning of two programmes. A large-scale and long-running change programme for their Rates business and a lighter Credit programme. We needed to show the bank how to run these in parallel rather than sequentially and have them alight onto the same system, where the lighter one did not design out any features which the longer term one would require at a later date. This meant we had to decouple dependencies between the two, even though they will arrive on the same platform at the end. 

“As always, cost appetite was a major concern for the bank, so in the early stages of the project we deployed three senior directors. This allowed for a very short engagement as they worked self-sufficiently for a three-week period, delivering all information back to the company in the formats they requested i.e. through concise presentations and PowerPoint decks.” 

Christian Marshall: “Ultimately, we delivered very high level, strategic, pertinent, efficient analysis through over 20 workshops with the various business areas. Often, consultancies deploy a team of 20-30 mid-level consultants coupled with a 150-page document that goes unused.” 

“This approach is most effective when a bank has relatively little experience of major change programmes. So when introducing a successful change program, early stakeholder engagement, pre-scoping and requirement gathering to bring stakeholders on-side is critical.”

Three weeks is a very short timeframe for just three people to amass all of the required information, can you describe some of the ways in which you achieved this?

Christian Marshall: “Well, the workshop process was key. Each session was limited to 90 minutes and all were scheduled within a two-week period. Essentially, they were very quick deep dives into parts of the business, which you can only do by having highly experienced individuals with deep business domain and knowledge of packaged software. This meant we could quickly gain buy-in from the stakeholders, establish credibility, get the information and then move on. 

Quote Anthony Hammond

“Ultimately, it means there’s no need to ask for business concepts to be explained, we can get straight into the bank’s unique, individual requirements rather than just trying to understand how a bank operates. Again, minimal time is expected from the client and therefore disruption to the day to day process of the business is reduced.”

Anthony Hammond: “Yes, because we’ve completed so many of these projects before we recognise which of the requirements will be bigger and harder - so we can minimise project risk. For example, we spent a lot of time with their front office and quants, advising them on best practice for integration of their own bespoke pricing models. So by efficiently organising our time on other departments we were able to focus more deeply on the areas of greatest concern to the business.” 

Can you describe any of Excelian Luxoft’s standard approaches that will be adopted by the bank as a result of the engagement?

Christian Marshall: “Our approach to regulatory projects is almost always to go live with the minimal build possible i.e. the lowest project risk. Go live, get the first stage of the project successfully done and then move onto the bigger things. It’s best to do these in later stages on a platform that’s already been delivered. Why? So that you’re not trying to do 74 things simultaneously with an army of 250 consultants. Keep your project team minimal, keep your project risk minimal and deliver in phases.” 

Anthony Hammond: “It was important to establish early on that this was not a technology project, it’s a business change project supported by technology. Often, this approach involves forging tight links between technology and the business and building ‘it can be done’ credibility. In this instance, we put together roadmaps that didn’t just show what we think you should do next, but instead highlighted the parallel activities the bank should do to hit its targets.”

Christian Marshall: “Ultimately, the business needs to see traction. They want to see a programme that’s starting, that sensible people are sitting in the room saying sensible things, and that there’s progress coming in digestible chunks. It’s about taking an incremental, DevOps Agile approach to strategic management consultancy that attunes to the business’s needs.”