Posted: 18 October 2012 | Author: Peyman Mestchian, Chartis Research
Regulatory compliance is one of the most pressing factors affecting their enterprise risk management programs and Basel 3 is a major consideration for firms. Its imminent implementation was one of the largest drivers of risk technology this year and it will continue to be a major factor in determining financial institutions’ plans for many years to come.
Basel 3 will therefore have a huge effect on financial institutions’ risk functions, but will also affect capital management, collateral management, liquidity management, the finance function, and profitability. Basel 3 increases the capital requirements for financial institutions, introduces both liquidity requirements, and new counterparty credit risk requirements, including both increased collateralization of OTC derivatives trades and a capital charge for CVA.
To cope with the onerous demands created by Basel 3, firms are making significant investments in technology required for compliance with Basel 3 and that can help them to comply while still carrying out day to day business activities, such as managing their risk profile. These include data models, flexible and real-time analytics, capital calculation engines, and specific technology support for risk and finance integration, liquidity risk and counterparty credit risk. However, while many vendors offer high-quality applications to deal with Basel 3, there is no system that offers a “one-stop-shop” that will “solve” Basel 3 for financial institutions. Firms will need to take a “horses for courses” approach to build a technology system appropriate for their business as well as compliance needs.