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Fundamental review of the trading book: Legal perspectives
Journal of Securities Operations & Custody,
13
(4),
374-380
(2021)
Abstract
The Basel Committee on Banking Supervision has historically played a key role in setting international standards for bank capital require ments. This paper covers the latest Basel framework, Basel IV, which is set to go into effect in 2023.This new framework introduces significant changes from previous frameworks and raises numerous legal and compliance issues, including different capital requirements applicable to banking books, which are subject to credit-risk capital requirements, and trading books, which are subject to market-risk capital requirements. The paper highlights challenges banks will face in implementing new ‘fundamental review of the trading book’ (FRTB) regulations that are part of Basel IV. FRTB will require banks’ technology systems and operations to adapt to the increased demand for data tracking that will be needed to perform new market risk calculations. Banks will also need to update policies on an annual basis to account for any extraordinary events in the previous year. The paper also addresses Basel IV’s impact on affiliates and outsourcing arrangements. The paper concludes by pointing to the need for regulatory guidance on how compliance with the complex capital requirements will be assessed and the type of enforcement that can be expected.
Keywords: fundamental review of the trading book; Basel IV; bank capital; trading book; banking book; internal models approach; standardised approach
The full article is available to subscribers to the journal.
Author's Biography
Jennifer Connors is a partner in Baker McKenzie’s Financial Regulation and Enforcement Practice. She advises a wide range of global financial market participants, including broker-dealers, investment advisers, private fund managers and financial technology (FinTech) companies on securities laws, digital assets, market regulation matters and cross-border compliance issues. Jennifer has more than 20 years of experience in legal and compliance roles at diversified global financial services firms and innovative FinTech companies as both a general counsel and a chief compliance officer.
Rebecca Leon is a partner in Baker McKenzie’s Financial Regulation and Enforcement Practice. She counsels broker-dealers, investment advisers and other financial services clients on a wide range of international, state and federal securities law issues. Rebecca advises clients from both a US and global perspective, helping businesses structure their global operations. She also guides clients in developing their global legal and compliance programmes to address the vast array of regulations that impact financial service providers.
Mark Fitterman is a senior counsel in Baker McKenzie’s Financial Regulation and Enforcement Practice, which provides clients with a full range of regulatory and compliance advice and enforcement counseling. Previously, Mark has served as a Partner in another international law firm and as an Associate Director in the Securities and Exchange Commission’s Division of Trading and Markets (formerly Market Regulation) and Office of Compliance Inspections and Examinations.
Kristal Petrovich is an associate in Baker McKenzie’s Financial Regulation and Enforcement Practice. Kristal has represented brokerdealers, investment advisers, public companies and individuals in regulatory investigations and proceedings brought by the US Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA).
