The New Basel Capital Accord, a regulatory framework for the banking industry commonly known a Basel 2, is set to pose wide-ranging challenges for bank IT and risk management systems, according to analysts.
Compliance projects are expected to cost larger banks up to £100m, including IT and business costs, according to the regulatory watchdog the Financial Services Authority. IT challenges include linking a maze of banking databases and reporting systems, updating older applications and ensuring data is accurate.
However, 24% of board directors surveyed at 50 UK financial firms said management software "was not important at all" in achieving compliance with Basel 2. Some 30% of directors thought management software was fairly important and 34% said software was highly important.
The survey, commissioned by business software supplier Cognos, found widespread doubts among board directors about the progress of Basel 2 projects. Of those questioned, 48% said they were unsure whether their bank would achieve full compliance in time. Concerns were also raised by 54% of directors who said they had not received the necessary IT data to help them make strategic decisions for the business.
Jost Hoppermann, vice president at Forrester Research, expressed surprise that board directors would largely overlook the important role software will play in Basel 2 projects.
"Our findings show that 50% to 60% of Basel 2 costs are IT-related," he said. "Although the most important IT projects will involve data modelling and cleansing, software will be need-ed to enter external risk ratings and calculate risk assessments."
Basel 2 IT tasks
Basel 2 aims to improve the stability of the world's financial system by making banks' assessment of their own investments and loans more sensitive to credit- and market-related risks. Banks will have to ensure financial data is timely and accurate and that it reflects the risks outlined under the accord.