Guest Contributor: Joe Antocci, Account Manager, Avid Technical Resources
While the world picks up the pieces caused by the destruction of the economic crisis, financial institutions face a variety of challenges – among these challenges is how to respond to the wave of new regulatory reform.
Given that technology plays such a vital role in supporting the infrastructure and operations of Banks and other Financial Institutions, how it is leveraged will impact the success that these organizations have in complying to new regulation. With the introduction of Basel III, the goal is to bring stability to the market, as well as individual institutions, by filling the holes that were brought to light by the credit crisis. Regardless of what one thinks about the introduction of Basel III, and there are plenty of those who have voiced their displeasure, Banks must now look at how they will create and further develop their systems to implement these changes.
Although some Banks will have upwards of 10 years to meet some of the new standards set by Basel III, there will still be a considerable amount of pressure to implement quickly. Some of the new changes include more strict liquidity controls and an increase in capital requirements for common equity. A considerable amount of time, resources and, inevitably, money will be poured into this effort so institutions must look carefully at how they will plan and allocate resources. Not only will capital costs be high, but costs to remain in compliance will also be significant.
Since all Banks have unique infrastructures in place, there is no common solution to conquering the complexity new regulation brings. For example, those who have already implemented Basel II, in most cases, are in a better position than those who have not. Even though there are new requirements brought forth by Basel III, it is possible the foundations set by the Basel and Basel II system can be tweaked to comply with the new standards.
Some also argue that Basel III will create a chance for Banks to realign their priorities and become more efficient. In an FST article by Alison Ebbage, she explains that these regulations bring the importance of back-office technology to the forefront and provide an opportunity to create a strong, fortified infrastructure that can reduce future operational costs – a practice that most all companies have attempted, in one way or another, throughout their organizations over the past few years.
It may be too early to tell how Banks will plan to implement the new regulations brought on by Basel III, but the importance of the strategy behind these decisions is apparent and will only be magnified as we look back at this time in the coming years.