The financial community is experiencing new and demanding regulatory pressures. Sarbanes-Oxley and Turnbull are driving corporate governance standards and the New Basel Accord (Basel II) will affect capital requirements, supervision of risk management and market disclosure.

In addition, Basel II will form the basis of the European Union’s Risk-based Capital Directive (RCD), also known as CAD 3, and we expect Sarbanes-Oxley-type regulations to be incorporated into EU law in the future. In addition, the Markets in Financial Instruments Directive (MiFID) will add extra risk and reporting requirements for those institutions operation within the European Union.

Basel II, Sarbanes-Oxley and MiFID all require an informed organisation. An organisation must develop its Awareness to understand requirements, obligations and benefits and to select the best way forward. Options need to be evaluated so that a Strategy is created. Education is then required for teams to convert this into the structures, processes and systems required – the Implementation. No programme is successful unless it is accepted by the users in all units, is being willingly and successfully used and has had the necessary maintenance and support processes installed – Deployment of a Risk Culture is the key to success.

There are other regulatory pressures. Improved risk management results in improved organisational effectiveness and hence improved profits – or at least, reduced losses. The credit rating agencies – Fitch, Standard & Poors, Moody’s, etc – will be looking at risk management effectiveness in their institutional ratings. And these credit ratings are key components of a bank’s financial profitability