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IHS Markit and Oliver Wyman join forces to develop risk factor modellability service for FRTB

New service will help banks mitigate capital impact of regulation 

IHS Markit (Nasdaq: INFO), a world leader in critical information, analytics and solutions, has engaged Oliver Wyman to support the build of a comprehensive methodology to help banks determine risk factor modellability under the new Fundamental Review of the Trading Book (FRTB) standards. The methodology will be developed within Markit’s FRTB Solution.

The ‘out-of-the-box’ methodology is being designed to significantly reduce the need for time-consuming and costly development and analysis work by banks. It will also help firms avoid unnecessary capital penalties under FRTB by letting them know which risk factors are modellable and which are non-modellable risk factors (NMRFs).

“Modellability of risk factors is among banks’ top concerns when it comes to FRTB,” said Yaacov Mutnikas, executive vice president of Financial Market Technologies at IHS Markit. “By providing a validated methodology that addresses this issue, we are giving banks the confidence that they are classifying risk factors correctly. With Oliver Wyman’s support, we are expecting to produce the first round of results early next year showing which elements of the risk factor universe are modellable and which are not.”

Oliver Wyman will help define the methodology within Markit’s Risk Factor Utility (RFU), a flexible risk factor modelling environment. It will be based on data from Markit’s FRTB Data Service, which combines trade data from the firm’s industry leading MarkitSERV platform with trade data contributed by partner banks. Both are components of Markit’s broader FRTB Solution.

“We will support IHS Markit with the development of the methodologies underlying the modellability mapping and bucketing procedures of Markit’s RFU and together we will refine them with the partner banks,” said Barrie Wilkinson, co-head of finance & risk practice, EMEA at Oliver Wyman. “This is a very timely development and a great example of how banks can work together with infrastructure providers to better manage costs.”

It is envisioned that the methodology could be adopted in its entirety or used as a starting point by banks wishing to develop their own proprietary methodology.

IHS Markit (Nasdaq: INFO) is a world leader in critical information, analytics and solutions for the major industries and markets that drive economies worldwide. The company delivers next-generation information, analytics and solutions to customers in business, finance and government, improving their operational efficiency and providing deep insights that lead to well-informed, confident decisions. IHS Markit has more than 50,000 key business and government customers, including 85 percent of the Fortune Global 500 and the world’s leading financial institutions.  Headquartered in London, IHS Markit is committed to sustainable, profitable growth.

Oliver Wyman is a global leader in management consulting. With offices in 50+ cities across 26 countries, Oliver Wyman combines deep industry knowledge with specialized expertise in strategy, operations, risk management, and organization transformation. The firm's 4,000 professionals help clients optimize their business, improve their operations and risk profile, and accelerate their organizational performance to seize the most attractive opportunities. Oliver Wyman is a wholly owned subsidiary of Marsh & McLennan Companies [NYSE: MMC].