According to the newly released results of a survey conducted by accounting firm KPMG late last year, banks in Europe and elsewhere are generally unprepared for the adoption of the Basel II accord by the planned 2007 deadline.
The Basel II accord requires banks throughout the world to adopt new procedures for measuring and reducing credit and operational risk. However, the stipulation that by the time the accord is adopted, banks must have two years of Basel II compliant historical risk data under their belts is causing problems for some, KPMG has revealed.
Concerns expressed by UK banks which participated in the month-long 38 country survey last year included fears over the potential cost of Basel II implementation, concerns over lack of IT flexibility, and uncertainty over the assessment of compliance systems.
Speaking with regard to the results, Jane Leach, Basel partner in KPMG’s Financial Services practice in the UK explained that:
“Whilst European banks are relatively ahead of the pack, they cannot afford to be complacent. Many of them are not as advanced in their projects as perhaps they should be. The inflexibility of IT systems emerged as a particular concern in Europe, and as IT is vital to the success of Basel, this needs to be addressed as a priority."
She continued:
“In the UK specifically, it is notable that the area giving banks the most concern is that of supervisory review. Clearly, banks feel unsure of how the FSA will be assessing the robustness of the systems that they have developed. The cost of Basel and the level of internal resources were also prominent concerns.”
According to KPMG, around 10% of banks on a global level are still establishing their Basel II teams, with only 8% internationally having reached the testing and validation stage of their credit risk projects. However, all of the banks questioned supported the initiative, and recognised the need for the accord.
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