Industry-focused Compliance - Governance, Risk, and Compliance Topic for Oracle Applications - page 385

Banking and financial services
Infission has a plan for expansion. These plans are more than can be financed out of
profits, so the treasurer, being the guy who is responsible for the corporate finance,
is off to talk to some old colleagues who now find themselves in the financial sector.
While we are there, we will talk to them about the major compliance issues in the
banking and finance sector.
Basel
The first compliance issue that they tell us about is the Basel accords. The purpose
of Basel II , which was initially published in June 2004, is to create an international
standard that banking regulators can use when creating regulations about how
much capital banks need to put aside to guard against the types of financial and
operational risks that the banks face. While not a law, in and of itself, the signatories
of the G10 are requested to advise their banking supervisory organizations to
implement its directives. Advocates of Basel II believe that such an international
standard can help in protecting the international financial system from the types
of problems that might arise should a major bank or a series of banks collapse. In
practice, Basel II attempts to accomplish this by setting up rigorous risk and capital
management requirements designed to ensure that a bank holds capital reserves
appropriate to the risk the bank exposes itself to through its lending and investment
practices. It needs to ensure that the accord is implemented uniformly else a short
term advantage accrues to the country with lower capital adequacy requirements,
and that country becomes a point of weakness in the global system.
Requirements of Basel
The requirements of the Basel accord are grouped under three pillars which aim
to have a holistic approach to managing risks.
The three pillars
The first pillar— Minimum Capital —focuses on capital requirements to better
reflect the true nature of risks. The second pillar— Supervisory Review —aims
at a more involved supervisory and regulatory system. The last pillar— Market
Disclosure —will potentially result in greater discipline imposed by the market.