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Basel II: BI Solutions, Not Tools

Basel II demands BI solutions, not tools.

When it comes to regulatory compliance, the clock is always ticking. Legal deadlines quicken the heartbeat of corporate executives, tempting them to reach for packaged solutions. Palms aren't dry in the financial services industry, where companies are under pressure to comply with the New Capital Accord (Basel II) before it goes into effect in 2006. Developed as a revision of the 1988 Basel Accord by the Bank for International Settlements, Basel II requires banks to alter processes and systems to do a better job of monitoring and managing risk. Banks must be prepared to show that they can handle defaults.

Trendspotting

Lower costs! Faster, more comprehensive data access! Those are the promises of data integration standardization. Yet, according to Ventana Research, only 33% of 190 companies it surveyed in early 2005 had such initiatives planned, underway or completed, and just 3.6% had deployed enterprise standards. The majority still make do with multiple products and custom code.

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Basel II challenges BI and data management mettle. Data collection and quality requirements are substantial; banks have to use the data effectively to sharpen internal credit rating models and other prediction and validation routines. For ongoing compliance, data intelligence must become embedded in investment and lending processes. Can all this be ready by next year?

Even organizations strong in BI and data management are looking for solutions — and so are vendors. In April, IBM stepped into the breech with an "end-to-end" solution that highlights a partnership with Fair Isaac and its TRIAD adaptive control system for credit account management. "Our expertise is in structuring data," says IBM's Director of BI Richard Wozniak. "We're offering a data model for retail banking, built by our consultants in the field, which is open for partners who can bring in expertise that we don't have."


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"TRIAD focuses on retail and small business portfolios, where Basel II requires the most advanced analytics," claims Fair Isaac's strategic partners director Matt Kreutzmann. Basel II compliance "aligns very well with what we've been doing for a long time to predict customer behavior — in this case, it will be their probability of default." By meeting the Accord's most stringent requirements, Kreutzmann says, "you lower capital reserve requirements, which is critical to business growth."

Deadlines have a way of focusing minds: Compliance could push the BI industry toward forming more best-of-breed packages while the market is hot.

David Stodder

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