Guide spells out key risks of Basel 2

A guide about the forthcoming Basel 2 code on risk management has been published by consultancy BearingPoint.

A guide about the forthcoming Basel 2 code on risk management has been published by consultancy BearingPoint.

The guide outlines seven common mistakes made in Basel 2 compliance projects, including failure to understand the overlap between regulatory projects, and failure to make the link between IT, risk management and the business.

Basel 2, due to come into force in 2007, requires firms to better assess and manage the risks they face. This will necessitate wide-ranging changes to IT systems worldwide and is one of a raft of corporate governance rules that will absorb IT budgets.

"Institutions intend to comply with Basel 2, but they are not sure what compliance means, or what value they will derive from the substantial efforts needed to attain compliance," said Bjorn Pettersen, a managing director at BearingPoint.

In January, City regulator the Financial Services Authority published guidance on Basel 2 for banks. A second consultation paper later this year will outline the costs and benefits banks can expect from compliance with Basel 2.

www.fsa.gov.uk


Basel 2 pitfalls

Waiting for the regulators to provide detailed guidance and lay out an implementation roadmap before beginning compliance work

Failing to understand the overlap among regulatory initiatives or dealing with them in a siloed way

Failing to make the link between information, technology, risk management and the business

Attempting to build a Basel 2 infrastructure without data or technical architecture roadmaps

Failing to generate support for a smooth implementation

Underestimating the magnitude of cultural change Basel 2 requires

Failing to correctly factor Basel 2 into an organisation's merger and acquisition strategy.Source: BearingPoint

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