Regulation call threat to bank IT investment

Multimillion-pound IT projects at UK banks could be stalled following calls by one of the UK's leading banking associations for...

Multimillion-pound IT projects at UK banks could be stalled following calls by one of the UK's leading banking associations for its members to more time to meet strict international risk management regulations.

The British Banking Association issued the call to water down the New Basel Capital Accord, commonly known a Basel 2, which, analysts warned, could cause problems with on of the biggest IT compliance project since Y2K.

Basel 2 is due to be implemented by the end of 2006 and it is estimated that banks operating globally will each have to spend between £20m and £100m to comply with its requirements.

There was mounting criticism in the UK and US that Basel 2 was unnecessarily complex and the timetable too ambitious for smaller banks, ahead of the British Banking Association's call for Basel 2 to be rolled out more flexibly.

The BBA said banks should to be allowed to achieve partial compliance with the requirements of Basel 2 by the 2006 deadline but have until 2010 to achieve full compliance.

Tony Lock, chief analyst at Bloor Research, highlighted the potential danger this could pose for IT departments. 

Many of the larger banks are thought to be on track to achieving compliance with Basel 2 but a four-year delay could encourage some financial institutions to sideline half-completed IT projects.

“IT projects must not stall. That’s the fear,” he said. “It would be very difficult to start them up again. If it looks like the call for a four-year delay is likely to succeed it could be serious [for IT departments].

Lock said a delay could leave banks running new systems and processes alongside older systems which comply with the original Basel Accord, which was introduced in 1988.

A delay could also have an impact on the outsourcing boom in the financial services sector, which has been driven by Basel 2.



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