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UMR Backtesting: Here to stay (Asset Servicing Times)


The Uncleared Margin Rules (UMR) have acted as a dark cloud across the financial industry for the past several years. Phase 5 and 6 firms have long hoped that the regulation’s backtesting-benchmarking requirements were to be dropped completely, but are now being forced to face the reality that backtesting is here to stay. Since the release of the European Banking Authority’s (EBA’s) Draft Regulatory Technical Standards (RTS) in November 2021, firms are scrambling to catch up before the September 2022 implementation date. 

Although backtesting has been prevalent across the finance industry, the topic cropped up less often within client conversations prior to the EBA’s Draft RTS. According to head of product at Cassini Systems, Thomas Griffiths, clients that were previously interested in backtesting were typically larger firms that were accustomed to model governance committees and had large internal approval of models set up, which they required for internal controls. 

However, over the past three months since the release of Draft RTS, this has changed massively. “Backtesting is now mentioned in all of our client conversations — from the time the Draft RTS was released onwards, it has become a talking point,” says Griffiths. Some firms are unaware of what backtesting is and why it is needed, having instead whittled it down to yet another thing on the UMR compliance checklist….

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