Basel adds flavour to capital management

29 Jan 2004

The Basel II rules, following two years of international business controversy in the wake of the WorldCom, Enron and AIB/Rusnak scandals, are intended to ensure that financial institutions match the amount of capital they hold more closely with the risks they take in their businesses. Set by the international committee of central banks and regulators, the new rules are undergoing a period of consultation in Europe and the US and are due to be finalised by the end of this year before implementation at the start of 2007.

Some bankers and politicians have criticised the reforms, which aim to lessen the risk of banking crises, claiming they could stifle the flow of money towards equity investment. However, according to Justin Keatinge (pictured), managing director of local IT services player Version 1 Software, the opposite would most likely prove through in that by having a more realistic view of their financial systems banks would be able to release capital that otherwise would have been tied up.

Version 1 in recent months has embarked on a major Basel II implementation for Irish Intercontinental Bank (IIB), which involves the rollout of an industrial-scale management information system (MIS) that includes statistical analysis and risk analysis reporting tools, data pooling technologies and business intelligence technologies. As well as this, the company has signed a similar deal with another undisclosed financial institution.

Keatinge’s colleague Tom O’Connor explains: “The Basel II accord governs the management of the capital that banks and mortgage lending bodies keep on their balance sheets and this has to be reported to the regulatory authorities. Banks are looking for industrial-scale solutions that would ensure their compliance. However, smart bankers are using this functionality to introduce decision support technology to the firm. Irish financial institutions are only beginning to do this.”

“Basel II has resulted in a major rush to invest in new MIS technologies and IT overhauls that has been compared to the Y2K situation of four years ago. However, this is different to Y2K insofar as there is a strong potential for return on investment for financial institutions as a result of better ongoing efficiencies that translate into better management of the business and ultimately better financial management that releases capital that otherwise would have been tied up,” Keatinge comments.

Established in 1996, Version 1 is a self-funded IT player and has been profitable for the past seven years. The company employs 45 people and as a result of major IT project wins in the financial services and e-government space it is planning to hire 20 senior IT executives in the year ahead.

Last month, the Temple Bar-based company beat off competition from global IT players such as HP, Accenture, IBM, Fujitsu and Cap Gemini Ernst & Young to scoop a major €1.2m contract win with the Department of Communications, Marine and Natural Resources to develop an integrated fisheries management system. Keatinge tells that the project involves the implementation of a completely bespoke system that connects the department with all of Ireland’s ports, fisheries boards, the Navy and the EU. The system will be deployed in browser format using J2EE code that will enable department executives, ports authorities and naval personnel to keep an accurate record of fish stocks as they are caught and landed.

By John Kennedy