As regards Basel II, June 2004 saw the publication of the final text of “A Revised Framework of the International Convergence of Capital Measurement and Capital Standards”. The most notable new developments are that it allows institutions to use internal risk measurement methodologies if they meet certain minimum requirements and are accepted by the supervisor. The possibility of using the most advanced methodologies will depend on the development of risk management systems, on the effective integration of these systems into management, on the adaptation of the technological environment and on the availability of consistent and integrated historical information databases. BIS Review 45/2005  11  Although the Accord will not enter into force until 2007, work has commenced on the long and complicated task of development, implementation, internal validation by institutions and review by the Banco de España of these methodologies, at speeds which will inevitably differ depending on the preparedness of the institutions. Furthermore, the European Parliament is debating a directive to legally implement Basel II after appropriately adapting it to the specific features of EU institutions and markets. It is difficult to state, in a nutshell, what the new Accord will signify. Perhaps most noteworthy are the three core ideas on which the three pillars rest: a recognition in regulation of sound practices in risk management, along with an incentive to encourage them; a strengthening of the supervisor’s judgement, as an added factor of safety; and the importance of market discipline, i.e.
With the accelerating pace of regional integration, financial institutions are presented the opportunities to broaden beyond domestic borders to capture opportunities for the regional markets. It has been more than 5 years since the Financial Sector Master Pan was launched. The strategic focus has allowed us to promptly emerge from the crisis management mode and moved full steam ahead towards developing the financial system, The initiatives undertaken have now laid a strong foundation for the development of a strong and diversified financial system. Significant progress has been achieved in building the capacity and capability of the financial sector and in putting in place the necessary financial infrastructure including the supporting legislation and the domestic financial markets. 2  BIS Review 55/2006  The financial landscape and operating environment that is envisaged in Phase 2, where domestic banking institutions would have built greater capacity and capability to compete, is also progressing as planned. The level of competition in the financial system has increased significantly, fuelled by greater expectations from customers and facilitated by a more flexible regulatory framework and increased deregulation and liberalisation. This has resulted in improvements in the delivery of financial services and more efficient pricing and risk management, all of which contribute towards raising the level of economic performance. The wide range of measures to improve efficiency and effectiveness of the financial institutions, include initiatives on improving risk management practices, further developing the human capital and building talents for the financial sector, as well as measures to elevate the level of consumer awareness.