Ageing IT systems at UK banks are hampering compliance projects to meet the Basel 2 regulation on risk management, a survey claims.
Around half of 294 financial institutions worldwide surveyed by professional services firm KPMG also admitted that they were only in a “pre-study” or “assessment phase” of their Basel 2 projects, even though the banking regulation on risk management is due to come into force at the start of 2007.
Although progress among UK banks was generally greater than regions such as Asia Pacific, UK banks admitted to concerns over the inflexibility of existing IT systems and, to a lesser extent, a lack of data to record operational losses.
Richard Boulton, principal adviser at KPMG, said old systems and the difficulty of threading information through often incompatible applications were causing the main headaches to UK banks.
“[Banks] have credit systems which are not the most advanced or state of the art and they need extra information, such as turnover from loans to small businesses,” he said.
“The other problem is that you have the information you need but its on three to four different systems which you have to be able to get to talk to each other.”
Boulton advised UK banks to take advantage of an overlap in requirements between forthcoming industry regulations to minimise the IT work needed, adding that banks might find it easier to use various IT compliance projects to comply with Basel 2 rather than a single project for a global business.
Basel 2 has been described the biggest IT challenge for the banking industry since Y2K. Analyst firm Datamonitor predicted that IT spending on Basel 2 by European banks would peak at about £1bn in 2005.