Building Societies Mixed Approach to Basel II Compliance

November 25th 2004

BlueMax IT, a leading provider of Compliance Professionals to the Banking and Finance Industries, believes many Building Societies are relying on their small size to delay implementation of the Basel II Directives.

Having surveyed all 63 members of the Building Society Association, BlueMax found that almost 50% of Societies had yet to actually commence operations to achieve compliance – due by the end of 2006. Just over 30% were planning to commence the pre-study phase in the beginning of 2005, but more worryingly almost 20% had not yet considered what would be involved or didn’t consider currently they needed to take any action.

Of the 63 Societies, only 21% - or 13 Societies – were confident that they had the Project in place and resourced to ensure that they would be compliant across all three pillars on time – and not surprisingly these were the larger societies.

Many of the smaller societies considered that the Capital Adequacy* requirements would not present a problem, but that credit and operational risk requirements could be achieved with minimal effort and resource.

Whilst Basel II was generally viewed as a positive step, particularly the Credit Risk requirements, most felt they had sufficient controls in place to minimise risk. Given the historical background of the Building Society Industry and their conservative approach to Capital Adequacy under the rules of their Mutuality, most felt they had taken the right approach, and didn’t need additional controls.

Nigel Wood of BlueMax was surprised so many Societies seemed unaware of the need to clearly understand the implications of achieving compliance, and that they seemed to rely of the fact that they were small. The common theme seemed to be (with the smaller Societies) ‘We will do the minimum we need to, but we won’t think about it until closer to the time’. In some cases, there seemed confusion regarding whether they need to achieve compliance by the end of 2006 - or to start then!

Said Wood – ‘If it is true that little needs to be done, surely it would be better to allocate resources earlier to carry out pre-study and assessment early rather than later. Basel II implementation will require considerable resource and management commitment, and Societies should understand the scope of the project as soon as possible to avoid expensive and disruptive last minute resourcing in order to make the deadline’.

*See FSA Document CP136 of May 2002 – ‘Individual Capital Adequacy Standards’

BlueMax is a dedicated, premier, boutique IT Recruitment consultancy specialising in banking and finance – and only banking and finance. BlueMax focus sectors are investment and retail banking and IT solution providers – with a particular emphasis on Compliance, Basel II and Anti-Money Laundering Fraud professionals.

The consultancy provides permanent and contract IT professionals – project managers, business analysts and leading edge programmers – with banking IT project experience to the following segments:-

· Regulatory Compliance - Basel II, FSA
· Anti – Money Laundering Fraud – Basel, FSA
· Sarbanes Oxley Compliance
· Banking and Internet Security
· Credit Risk
· STP – Front to Back Office Processing Projects

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