Banks get new Basel II compliance guidelines

UK financial industry regulator the Financial Services Authority (FSA) has set out new guidelines for banking industry compliance with the credit risk requirements of the Basel II accord.

The FSA has issued its proposals in a consultation paper on the key aspects of UK implementation of the European Union's Capital Requirements Directive (CRD), which is closely linked to Basel II.

A key plank of this will be massive changes to internal processes and IT systems to enable banks to profile and monitor credit risk exposure when the Basel II accord becomes effective in 2007.

The FSA said that even though aspects of the CRD have not yet been finalised it wants to provide banks with as much early clarity as possible on the likely changes that will be necessary.

"The implementation of the CRD will involve considerable work for those firms on which it impacts as they undertake the necessary systems and risk management work required by the directive," the FSA paper said.

The consultation on the FSA paper, Strengthening capital standards closes on 29 April 2005.