Rethinking Risk Data Management And Technology In The Face Of FRTB: The COVID-19 Reprieve As An Impetus For Japanese Banks

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The COVID-19 economic crisis is putting pressure on Japanese banks’ capital.

Among other stresses, rising unemployment will almost certainly drive an increase in non-performing loans and impact banks’ regulatory reported risk-weighted assets (RWA). As they wrestle with crisis-driven pressures on their capital, financial firms have also been feeling the weight of preparing for the Financial Services Agency of Japan’s (JFSA) Fundamental Review of the Trading Book (FRTB) reporting.


Financial institutions see FRTB as presenting new challenges on the risk and regulatory reporting front. The so-called Basel IV framework, with which JFSA is aligned, calls for FRTB reporting on huge data volumes with extreme granularity. Banks fear that FRTB requirements will place severe strain on their current data management and regulatory reporting capabilities.

But perhaps there is a light shining at the end of the proverbial tunnel. Due to pandemic disruptions, JFSA recently announced a reprieve. FRTB reporting is delayed to 2023, giving financial institutions valuable time to consider the situation more strategically. The crisis can become the impetus for Japanese financial institutions to prepare for FRTB holistically within their overall approach to Basel IV. As they assess what needs to be done to execute FRTB efficiently, banks can also take a refreshed look at how they are currently handling RWA data, calculation, and reporting.

Japan’s Risk Backdrop And Basel IV Landscape

Japan’s financial system has been stable. In previous crises, the country’s financial institutions have proven to be resilient in terms of capital and liquidity. However, the profitability of domestic deposit-taking and lending activities – core financial intermediation functions – has continued to decline due to structural factors. In their quest for new sources of profitability, Japanese banks have expanded their activities overseas and pursued strategies to provide more comprehensive financial services. This expansion has increased the banks’ risk, but it has not secured commensurate profits, leading to moderate declines in capital adequacy ratios and stress resilience. Especially under today’s pandemic-driven economic crisis conditions, Japanese banks must focus closely on managing capital risk.

As the current crisis puts stress on financial institutions’ top lines, demand for credit will increase. The Bank of Japan’s decisions to support the real economy through fiscal and monetary measures may not translate into real growth unless additional measures are being taken around capital optimization under the framework. Organizations must plan to provision for capital conservation and countercyclical capital buffers with stress scenarios.

Asking Questions About Data Management And Technology

While focusing on managing capital and meeting Basel IV requirements, Japanese financial institutions must also address their needs for data management and risk and regulatory reporting technology. Establishing a strong, transparent foundation for risk and regulatory reporting will enable banks to derive insights for risk decision-making and satisfy regulatory expectations. As they plan for FRTB and Basel IV, financial firms’ risk, data, and technology leaders are focusing on understanding the underlying data and RWA calculation used in calculating their capital ratios, compliance with the Basel IV’s new approach to FRTB, and whether their current technology infrastructure can cope with the high amount of data required for compliance with this new approach.

Rethinking Basel-Driven Risk And Regulatory Reporting – With AxiomSL

By exploiting JFSA’s FRTB reprieve, Japanese banks now have more time to assess their needs and implement a strategic, holistic solution. With AxiomSL, firms can implement robust risk and regulatory solutions that provide deep transparency into their risk data and calculations, while delivering compliant regulatory reporting and the operational efficiencies that enable them to manage their Basel journeys.

Deployed on its secure RegCloud® or on-premises, AxiomSL’s ControllerView® data integrity and control platform provides institutions with a strategic and scalable end-to-end reporting capability to address regulatory requirements transparently and efficiently across Basel capital and liquidity and other frameworks.

Underpinned by its extensible CapitalView data dictionary and powerful risk calculation architectures, AxiomSL’s solution provides a framework for a range of complex Basel-related capital calculations, including RWA and FRTB.

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