Cognos the provider of business intelligence and performance management solutions, estimates that two thirds of banks in the UK are taking a 'bare minimum' approach to Basel II compliance. With the financial risk management regulation due to come into force by the end of this year, some banks seem to think that it is just another regulation to adhere to, rather than realising that it forms the basis of a continuous risk management process.
"With the average bank spending an estimated €88 million on meeting the requirements , many financial institutions have seen Basel II as just another expensive regulation to comply with," said Laurence Trigwell, senior financial director at Cognos. "What they need to consider is how Basel II can help them minimise risk and maximise profit, by adopting the principles of the regulation as an important ongoing procedure."
Cognos predicts that, in the advent of Basel II, two different approaches to risk management are emerging, and this is creating an uneven playing field between those that aim to comply and those taking a broader view.
"Taking a proactive approach to Basel II will ensure data is available across the business, from senior management down to the individual credit officer, so the bank as a whole will be better placed to make risk-based, rather than purely revenue-based decisions," explained Trigwell.
"Ultimately, Basel II aims to encourage the use of modern risk management techniques. It will benefit those banks that both comply with it and adopt its underlying principles, rather than treating it as a 'box-ticking' exercise. With a repeatable and consistent approach to collating data on risk management, banks will be able to unlock potential competitor advantage by reducing risk and boosting revenue," he concluded.
