Australia’s banking industry needs to do more to prepare for proposed changes to international reporting regulations, industry sources say. The new regulations could compel banks worldwide to spend tens of millions of dollars on technology over the next several years.
However, there is little indication that local banks will be prepared and compliant when the new guidelines take over from 2005.
The purpose of the regulations is to gather data and create credit and operational risk management models for government oversight. The banks could resist the changes, based on preliminary feedback from senior banking executives and IT managers.
The Basel Capital Accord II is expected to be finalized by the Bank for International Settlements (BIS) in Basel, Switzerland, by the end of this year.
The revised banking guidelines give some banks the choice of using their internal risk ratings systems to evaluate corporate borrowers.
Some organizations may then be faced with building out databases, reporting systems and integration technologies such as extraction, transformation and loading technologies to take advantage of proposed risk management standards, according to a report released earlier this month by Mass.-based Meridien Research.
Unlike current regulations under Basel I, the new accord addresses requirements for information systems and will likely require banks to set aside capital for operational risks – a first for the industry, according to the report. While many major financial institutions throughout the world have enterprise risk systems in place, “few of those systems are capable of automatically generating regulatory reporting”, it states.
Basel II will make the banking and finance industry more accountable.
Under the accord, financial institutions in Australia should brace themselves for stricter control of their capital for covering credit risks, warn analyst firms like Gartner. From a risk management perspective, banks will need to cover their processes on a monumental scale, as in the case of Year 2000 and Goods and Services Tax, says Gartner.
In practice, the new guidelines mean IT, banking and risk management executives in financial organizations need to get their databases talking to each so that they can report on their credit risk in real-time.
Moreover, banks’ internal processes need to be adequately sound to assess if they have the capacity to ensure the bank sticks to set commercial lending limits, according to Gartner.
However, worldwide, organizations are concerned about the volume of work they need to do before they can meet the requirements of the new accord.
Stuart Campbell, Teradata financial services industry consultant for Asia-Pacific, said his company had little information to show that local banks will be prepared and compliant when the new guidelines are in place.