Canadian banks moving towards Basel II compliance

A recent report from Accenture suggests Canadian banks are more on the ball than their American counterparts when it comes to regulatory compliance preparation, but practically everybody is trailing the Brits.

Banks the world

over are getting ready for Basel II, a framework that requires them to and store credit data such as ratings decisions, borrower histories, and probabilities of default and rating migration for at least three years.

Basel II is the work of The Basel Committee on Banking Supervision, a Switzerland-based committee of central banks and bank supervisors and regulators from more than a dozen countries, including Canada.

Banks should be in a test phase for Basel II in 2006 with production-ready compliance in 2007.

Accenture conducted a Basel II study with 63 North American and European banks, including the five largest banks in Canada. The firm is working with a number of these banks – three in Canada – to help them become compliant.

“Fundamentally, Canada is doing pretty well in terms of responding to the compliance needs,” said Gary Fink, managing partner for Accenture’s finance and performance management practice for North America. “They’re clearly ahead of the U.S. I would say from a timetable, at least three to six months. From a U.K. standpoint, (Canadian banks) are nipping at their heels, but they’re not quite as far along.”

There’s nothing between the banking structures of the U.S. and Canada to indicate the disparity, he said. Nor is there is any significant difference in levels of commitment to technology change. More likely, it’s “about making a decision to move and getting moving. I think early on the American banks took a wait-and-see attitude. Now they’re a little bit behind the eight ball. It’s less about Canada being ahead and more about the laggards.” contacted several major Canadian banks to comment on the Accenture study but none returned calls at press time. All banks will face “pretty dramatic” changes in the way they store and report on data in order to reach Basel II compliance, said Fink.

“It’s really around data consolidation that they haven’t had to do before. The big challenge is around getting all that data into a place where they can maintain it and report against it. As a result, there’s a fair amount of data aggregation and data transformation that the banks have to go through.”

There’s so much regulation around banking, it’s almost impossible for banks to meet all the criteria, said Hari Venkatacharya, president and CEO of security and business process consulting firm Cyrca Solutions Ltd., based in Toronto.

Venkatacharya estimates that there are about 15,000 banking regulations in the U.S. alone. Faced with those numbers, banks are taking a broad approach to compliance and planning strategies that would let them meet as many requirements as possible.

“The question is, how do you look at the high points of each of regulations and come up with strategies and implementation plans to ensure that you’re complying sort of in an umbrella fashion?” he said.

Training and education has become a more important issue than technology preparedness, he added, since regulation must be enforced at all levels of an organization.

“Whether it be a bank or other organizations, you have governance guidelines mandated to the board to the CEO or the CFO. The gap that’s arising is how to translate those to senior managers and below that to ensure that there are actually implementation plans put into place,” he said.

In some cases, banks may use Basel II as an opportunity to take their data systems beyond what is required of them, said Fink. But “the challenge, quite frankly, is there’s so much to do to become compliant it is very hard to do that.”

Where that may be more applicable is in the U.K., where banks are on the home stretch of reaching compliance and have the luxury of looking beyond the boundaries of Basel II.

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Jim Love, Chief Content Officer, IT World Canada

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