Effective Risk Management is the hallmark of successful financial institutions. Due to the nature of the business, the success of financial institutions depends on the security, privacy, and reliability of services backed by robust operational practices.
Effective risk management strategies can be implemented by integrating effective bank-level management, operational supervision and market discipline. It is also imperative for these institutions to update their risk management practices in accordance with prevalent legislation and regulatory environment. With these aspects in mind, the Basel Committee on Banking Supervision published the Capital Adequacy Accord, also known as the Basel Accord, in 1988.
The Basel Accord defined the parameters of risk management and capital adequacy for Financial Service Providers. With the growth in the financial services sector, the Committee felt the need to update the Accord in line with new developments. As a result, it proposed the New Basel Capital Accord, also known as Basel 2, in June 1999. With its new risk-sensitive framework, Basel 2 aims to fill the gaps left by the previous Accord. Basel 2 was devised to improve the soundness of the financial system by aligning regulatory capital requirement to the underlying risks of the banking industry. It encourages banks to conduct better risk management and enhance market discipline. According to the Committee, financial institutions should integrate Basel 2 in their operations by year-end 2006. Efficient risk management, as outlined by Basel 2, can be ensured by leveraging information technology assets.
Thus, to implement Basel 2, the financial sector will rely significantly on IT service providers. Towards this end, the IT sector is required to provide a more coherent architecture for process automation and integration, and cost reduction mechanisms. This implementation will in effect encourage the development of new IT based value-add products, services and channels. All of these will be compliant with Basel 2 regulations.
The Basel Accord defined the parameters of risk management and capital adequacy for Financial Service Providers. With the growth in the financial services sector, the Committee felt the need to update the Accord in line with new developments. As a result, it proposed the New Basel Capital Accord, also known as Basel 2, in June 1999. With its new risk-sensitive framework, Basel 2 aims to fill the gaps left by the previous Accord. Basel 2 was devised to improve the soundness of the financial system by aligning regulatory capital requirement to the underlying risks of the banking industry. It encourages banks to conduct better risk management and enhance market discipline. According to the Committee, financial institutions should integrate Basel 2 in their operations by year-end 2006. Efficient risk management, as outlined by Basel 2, can be ensured by leveraging information technology assets.
Thus, to implement Basel 2, the financial sector will rely significantly on IT service providers. Towards this end, the IT sector is required to provide a more coherent architecture for process automation and integration, and cost reduction mechanisms. This implementation will in effect encourage the development of new IT based value-add products, services and channels. All of these will be compliant with Basel 2 regulations.
No comments:
Post a Comment