Tech seller says Basel II is good for business

15 Jan 2004

Irish IT services firms are gearing up for the biggest business drive since Y2K with the advent of new international Basel II rules for capital management in financial institutions. This will result in the implementation of a whole range of management information systems (MIS), reporting systems and statistical and risk analysis tools by the end of 2006.

The new Basel II rules follow two years of international business controversy in the wake of the WorldCom, Enron and AIB/Rusnak scandals. Set by the international committee of central banks and regulators, the regulations are intended to ensure that financial institutions match the amount of capital they hold more closely with the risks they take in their businesses. The Basel II 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 it could stifle the flow of money towards equity investment. However, according to Justin Keatinge, managing director of local IT services player Version 1 Software, the opposite would most likely prove true. He said 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 that includes statistical analysis and risk analysis reporting tools, data pooling technologies and business intelligence technologies. The company has also signed a similar deal with another financial institution that it cannot name.

Keatinge’s colleague Tom O’Connor explained: “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.”

Justin Keatinge added: “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 frees up capital that otherwise would have been tied up.”

O’Connor said that the presence of a strong indigenous financial community, as well as IFSC companies that process significant amounts of capital, would mean a considerable business base in Ireland for IT services firms such as Version 1 to provide Basel II-compliant systems.

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 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.

By John Kennedy