Regulators drive op risk innovation, says Meridien

MASSACHUSETTS -- Banks will need to step up their efforts to comply with the operational risk components of the revisions to the Basel Accords, says a new report from Meridien Research, a consultancy based in Massachusetts.

The report’s author, Deborah Williams, says, "It is clear that the point of pain for nearly every financial institution is simply achieving compliance with regulatory requirements. Motivations to adopt operational risk solutions clearly stem not from the severity of operational risk losses or a perceived lack of competitiveness, but from a purely defensive position."

The report says that European financial institutions, spurred on by the more active regulatory regimes of countries such as Germany and the UK, are further along in developing internal oprisk measurement and management frameworks than US banks. In the US, regulators only began to actively promote the issue in the second and third quarters of 2002.

Meridien says that the time needed for a bank to develop op risk systems required to undertake the advanced methodology approach is a minimum of two to three years. The Basel revisions come into effect at the end of 2006.