Basel II Implementation Challenges for a Global Bank

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Basel IIImplementation Challenges for a Global
Bank
Mumbai, March 13
Andy CharltonGroup Head, Basel Implementation
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Standard Chartereds Basel Challenge

• 56 countries scale and complexity varies widely
• FSA lead regulator but all are important
• Different and evolving Basel regulations and
  timetables
• Internal consistency and standards
• Basel is a priority but other strategic
  imperatives

SCB approaches
Credit Risk Wholesale
Credit Risk Consumer
Market Risk
Operational Risk
Standardised
Standardised
Basic Indicator Approach
Standardised
Standardised
Basic Indicator Approach
Standardised
Foundation - IRB
Standardised
Foundation - IRB
TheStandardised Approach
Advanced - IRB
Advanced - IRB
Advanced Measurement Approaches
Internal Models (CAD II)
Advanced - IRB
Retail - IRB
Advanced Measurement Approaches
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Key learnings

• Be clear about objectives
• Adopt an enterprise-wide approach
• Know where you stand
• Focus on data and information
• Models the devil is in the detail
• Pillar 2 will be critical
• Education and communication are key enablers
• Home-host disparities increase complexity

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Be clear about objectives

• Why are we doing this?
• compliance
• better risk management
• capital efficiency
• increased profitability
• investor community perception
• competitive advantage
• Focus on outcomes... manage the inputs

The worlds best international bank Leading the
way in Asia, Africa and the Middle East
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Adopt an enterprise-wide approach

• Successful Basel II implementation requires
  engagement across the bank
• Basel II is not a Risk project or a Finance
  project or a Compliance project or an IT
  project or
• Support engagement through inclusive governance
  structures
• Top management engagement is essential
• In-country engagement is vital
• Implementation is a programme of continuous
  improvement
• Adapt and adopt in BAU as much as possible

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Know where you stand

• Self assessment must be done in detail with
  rigour
• Ensure robust process to address initial
  non-compliance
• Ensure audit trails and transparency
• Basel regulations emphasise the importance of
  consistent policies and procedures

Self Assessment
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Focus on data and information

• Basel II requires data to be managed in a more
  robust manner
• Governance, infrastructure, assurance all require
  attention
• No shortcuts to robust data for models
• Focus on reporting early but retain flexibility
• Reliable information in critical to Use

Use of information is likely to be key to
generating lasting business benefits
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Models the devil is in the detail

• IRB modelling expectations very prescriptive
• Robust data is essential base
• Good governance and evidence is critical
• Senior management challenge is vital
• Appropriate MI reinforces Use
• Education is a major challenge
• Models inform judgement. They are not a panacea

Meet minimum standards but establish a process of
continuous improvement
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Pillar 2 is critical
Pillar 2

• Pillar 2 and supervisory review determine capital
  requirements
• Its not all credit, market and operational risk
• ICAAP should enhance existing capital management
  processes
• Home/host challenges will add to complexity
• Pillar 2 requirements still lacking definition

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Education and Communication are key enablers

• Complexity means excellent communication and
  engagement are essential
• Regulations seek to embed cultural change
• Fear of technical complexity to overcome
• Education required to establish compliance
• But education to support Use is a better
  challenge

Education supports Use and delivers objectives
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Home/host disparities increase complexity

• Differing regulations differing timelines
• Global coverage vs local coverage
• Multiple reporting requirements
• Multiple applications... multiple ICAAPs
• Inefficiency... resource contention... additional
  cost

All regulators are important. Manage accordingly!
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Conclusion

• Establish desired outcomes and focus on them
• Take enterprise-wide approach
• Understand complexity and resource appropriately
• Recognise that Basel II is a long term commitment
  to continuous improvement

Local banks and international banks face similar
challenges but scale and multi-geography adds
complexity