Market Risk and FRTB Implementation Certification Training

This Market Risk and FRTB Implementation certification training is an advanced professional program designed to deepen participants’ understanding of modern market risk frameworks and the practical challenges of implementing the Fundamental Review of the Trading Book (FRTB) — the Basel III capital standard for market risk. This course provides a comprehensive exploration of how FRTB reshapes market risk capital requirements, including the transition from legacy approaches to the Standardised Approach (SA) and the Internal Models Approach (IMA), expected shortfall calculation, desk eligibility criteria, non‑modellable risk factors (NMRFs), and supervisory expectations. Through real‑world case studies, practical walkthroughs and hands‑on examples, learners will build the skills needed to benchmark FRTB frameworks, navigate data and governance challenges, apply backtesting and P&L attribution tests, and optimise risk‑weighted assets across trading activities.

FRTB Overview

• Evolution from Basel 2.5 to the Basel Market Risk Framework
• Regulatory concerns with Basel II and Basel III approaches
• Basel consolidated framework (2023) and global implementation timelines (EU, UK, US, APAC)
• Industry-wide implementation challenges



Trading Book / Banking Book Boundary

• Revised trading book and banking book boundary rules
• Trading book definition and presumptive list
• Capital arbitrage concerns and supervisory overrides
• Internal risk transfer (IRT) rules and restrictions



Trading Desk Structure & Governance

• Definition and role of a trading desk under FRTB
• Desk-level approval requirements under SA and IMA
• Model decommissioning and fallback to the Standardised Approach
• Use of sub-desks and hierarchical desk structures
• Risk management policies, reporting, and limit frameworks
• Optimisation of risk-weighted assets (RWA) across desks



Sensitivity-Based Approach (SBA)

• Objectives and high-level overview of the SBA
• Calculation of risk sensitivities
• Delta, Vega, and Curvature risk components
• Risk weights, buckets, and correlation structures
• Coverage across equity, FX, interest rate, commodity, and credit spread risks



Default Risk Charge (DRC under SA)

• Default risk definitions, risk buckets, and LGD assumptions
• Differences between the FRTB DRC and Basel 2.5 IRC



Residual Risk Add-On (RRAO)

• Identification of instruments subject to residual risk
• Examples from correlation trading portfolios



SA Calculation Walkthrough

• End-to-end Standardised Approach capital charge example
• Combined scenario incorporating SBA, DRC, and RRAO
• Hands-on exercises and spreadsheet illustrations



IMA Framework

• Trading desk-level eligibility requirements
• General qualitative criteria (D352)
• Model validation, governance, and approval processes
• Data standards and requirements under FRTB



Expected Shortfall (ES) Framework

• Conceptual differences between Expected Shortfall and VaR
• Liquidity horizon concepts and assignment
• Scaling and aggregation across multiple liquidity horizons
• Stress ES calibration using the “stress-of-the-day” period



Non-Modellable Risk Factors (NMRF)

• Risk Factor Eligibility Test (RFET)
• Data sufficiency requirements (24-in-12 rule)
• NMRF capital charge using Stress Expected Shortfall (SES)



Stress Testing Standards

• Scenario-based stress testing approaches
• Internal stress testing frameworks and governance
• Integration with ICAAP and ILAAP processes



FRTB Capital Requirements

• Capital determination under internal models
• Impact of unapproved desks on capital requirements
• Capital output floor under Basel III finalisation
• RWA impact assessment for banks



Backtesting Framework

• Actual P&L, hypothetical P&L, and risk-theoretical P&L
• Traffic light approach and binomial testing
• Challenges of backtesting Expected Shortfall versus VaR



P&L Attribution (PLA) Test

• Comparison of Hypothetical P&L (HPL) and Risk-Theoretical P&L (RTPL)
• Identification of unexplained P&L
• Statistical testing and interpretation of p-values
• Desk approval implications and consequences
• Worked examples and practical exercises



Default Risk Charge (DRC under IMA)

• Migration and default risk modelling concepts
• Differences between FRTB DRC and legacy IRC
• Spreadsheet-based DRC calculation example



Implementation Challenges and Bank Perspectives

• Global FRTB implementation timelines
• Operational and organisational complexities
• Model lifecycle management considerations



Data Challenges

• Data sourcing, quality, and completeness issues
• Data gaps affecting RFET and NMRF assessment
• Time series requirements under FRTB
• BCBS 239 principles for FRTB data governance



RWA Comparability Exercises

• Supervisory benchmarking exercises
• Drivers of RWA variability across jurisdictions



Integrated Stress Testing & Reconciliation

• Linking Standardised and Internal Model Approaches
• Integration with enterprise-wide stress testing programs
• Linkages between FRTB, ICAAP, ILAAP, and Recovery Planning



Final Considerations

• System design and technology infrastructure considerations
• Reporting and public disclosure requirements
• End-to-end FRTB operating model design
• Wrap-up, discussion, and Q&A

• Basic understanding of market risk and trading activities
• Familiarity with financial instruments such as bonds, equities, FX and derivatives
• General awareness of regulatory capital or Basel frameworks (helpful but not required)
• No prior hands-on experience with FRTB models or calculations required

• Market risk and trading risk professionals
• Front office, risk and quantitative analytics teams
• Regulatory capital, ICAAP and stress testing specialists
• Model validation, model risk management and quantitative audit teams
• Finance, treasury and RWA optimisation professionals
• Supervisors, regulators and consultants involved in FRTB implementation

• 20 multiple-choice questions covering all course modules
• Passing requirement: at least 15 correct answers
• Two attempts allowed to achieve a passing score
• Certificate issued upon successful completion of the exam

He is a seasoned risk management and regulatory specialist with deep expertise in market risk frameworks and the implementation of the Fundamental Review of the Trading Book (FRTB) under the Basel III market risk regime. He brings practical insights into the revised trading book/banking book boundary, standardized and internal model approaches to capital requirements and the real‑world challenges financial institutions face during FRTB adoption. With a strong focus on calibration, governance, risk sensitivities and stress testing principles, he helps participants build both conceptual understanding and practical implementation strategies. Passionate about advancing professional competence in regulatory risk, he equips learners with the tools and confidence to navigate and apply FRTB requirements effectively in their organizations.

By the end of this course, participants will be able to:

• Describe the evolution of market risk regulation and the rationale for the Fundamental Review of the Trading Book (FRTB).
• Explain the differences between the Standardised Approach (SA) and Internal Models Approach (IMA) under FRTB and the implications for capital requirements.
• Interpret the revised trading book and banking book boundary rules and understand their impact on risk management and capital allocation.
• Calculate key sensitivity‑based risk components (delta, vega, curvature) and understand the structure of risk buckets and correlations used in the SA under FRTB.
• Apply concepts of expected shortfall (ES), liquidity horizons and stress ES calibration in the context of FRTB capital measurement.
• Assess the role and requirements of desk eligibility, model governance and validation under the IMA framework.
• Conduct backtesting and P&L attribution (PLA) tests, interpret results, and understand their influence on regulatory capital outcomes.
• Identify and manage non‑modellable risk factors (NMRFs) and understand data sufficiency requirements such as the risk factor eligibility test (RFET).
• Recognise implementation challenges and design considerations, including data quality, governance, reporting and technology infrastructure for FRTB compliance.