Mumbai, March 13
Basel II
Implementation Challenges
for a Global Bank
Andy Charlton
Group Head, Basel Implementation
Standard Chartered’s Basel Challenge
SCB approaches
Credit Risk
Wholesale
Standardised
Credit Risk
Consumer
Standardised
Market Risk
Standardised
Operational Risk

56 countries… scale and complexity varies
widely

FSA lead regulator… but all are important

Different and evolving ‘Basel’ regulations…
and timetables

Internal consistency and standards

Basel is a priority… but other strategic
imperatives
Basic Indicator
Approach
The
Foundation - IRB
Standardised
Approach
Advanced
Advanced
Internal Models
- IRB
Measurement
Advanced - IRB Advanced
Retail - IRB
Measurement
(CAD II)
Approaches
Approaches
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Key learnings

Be clear about objectives

Adopt an enterprise-wide approach

Know where you stand

Focus on data… and information

Models: the devil is in the detail

Pillar 2 will be critical

Education and communication are key
enablers

Home-host disparities increase complexity
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Be clear about objectives

Why are we doing this?
– compliance
– better risk management
– capital efficiency
– increased profitability
– investor community perception
– competitive advantage

Focus on outcomes... manage the inputs
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Adopt an enterprise-wide approach
 Risk
 Finance
 Businesses
PSC
Outcome
based
workstreams
PSC
Group
Project
Steering
Committee
 Governance
 Compliance
 Audit
PSC
PSC
Country
PSC
Country
coordinators

Successful Basel II implementation requires
engagement across the bank

Basel II is not a Risk project… or a Finance
project… or a Compliance project… or an IT
project or…

Support engagement through inclusive
governance structures

Top management engagement is essential

In-country engagement is vital

Implementation is a programme of continuous
improvement

Adapt and adopt in BAU as much as possible
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Know where you stand

Self assessment must be done in detail… with rigour

Ensure robust process to address initial non-compliance

Ensure audit trails and transparency

Basel regulations emphasise the importance of consistent policies and procedures
Self Assessment
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Focus on data and information
Calculation &
Reporting
tool

Basel II requires data to be managed in a
more robust manner

Governance, infrastructure, assurance all
require attention

No shortcuts to robust data for models

Focus on reporting… early but retain
flexibility

Reliable information in critical to Use
WB Data
Warehouse
Use of information is likely to be key to generating lasting business benefits
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Models – the devil is in the detail

IRB modelling expectations very
prescriptive

Robust data is essential base

Good governance and evidence is critical

Senior management challenge is vital

Appropriate MI reinforces Use

Education is a major challenge

Models inform judgement. They are not a
panacea
Meet minimum standards but establish a process of continuous improvement
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Pillar 2 is critical
Pillar 2
Capital Demand
Internal Drivers
 Risk Profile &
Business Objectives
External Drivers
 Investor Community
 Regulators Capital Requirements
Capital Management
 Capital Ratio Targets
 Individual Capital Guidance (FSA)
 Capital Management Policy and Objectives
 Capital Deployment (Subsidiary & Country)
Capital Supply
Capital Raising
Balance Sheet
Management

Pillar 2 and supervisory review
determine capital requirements

It’s not all credit, market and
operational risk

ICAAP should enhance existing capital
management processes

Home/host challenges will add to
complexity

Pillar 2 requirements still lacking
definition
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Education and Communication are key
enablers

Complexity means excellent communication
and engagement are essential

Regulations seek to embed cultural change

Fear of technical complexity to overcome

Education required to establish compliance

… But education to support Use is a better
challenge
Education supports Use and delivers objectives
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Home/host disparities increase complexity

Differing regulations… differing
timelines

Global coverage vs local coverage

Multiple reporting requirements

Multiple applications... multiple
ICAAPs

Inefficiency... resource contention...
additional cost
All regulators are important. Manage accordingly!
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Conclusion

Establish desired outcomes and focus on them

Take enterprise-wide approach

Understand complexity and resource appropriately

Recognise that Basel II is a long term commitment to continuous improvement
Local banks and international banks face similar challenges
but scale and multi-geography adds complexity
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