Financial firms to increase investment in compliance

Financial firms to increase investment in compliance

Financial institutions view compliance with regulations such as Basel II and Sarbanes-Oxley as the single most important driver of business strategy in 2004, according to a survey by Sun Microsystems.

The survey - conducted among 41 financial institution representatives at a Sun client conference organised by Finextra sister company 660 Degrees - found that 83% of respondents believe investment in compliance technology will be higher in 2004 than in 2003.

Of those surveyed, 64% cite compliance with legislation such as Basel II and Sarbanes-Oxley as 'very important' and 26% as 'important'. Over half (55%) of firms describe compliance as a "distraction" from their core business in 2004 as they take steps to meet legal requirements.

Under Basel II, banks will be required to set aside capital to cover contingencies relating to operational risk. The final rules, which come into effect in 2007, will require banks to have collected and aggregated three years' worth of data in order to effectively monitor and analyse risk under internal programmes.

Sarbanes-Oxley legislation requires chairpersons and chief financial officers to submit documents attesting to the accuracy and soundness of financial reports.

Martin Brown, UK head of finance, Sun Microsystems, says because of this regulation, sophisticated data mining tools, archival and retrieval systems and security software are now top of many firm's priority lists.

"2004 will be a defining year for regulation in the financial services industry. Not only is Sarbanes-Oxley coming into force, but in order to meet Basel II in 2007 financial institutions need to put the building blocks in place now," he adds.

Brown says that the Basel II and Sarbanes-Oxley are encouraging good business practice: "A firm should know what its exposure is and be able to base decisions on a complete set of historical data."

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