Early adopters of Basel II requirements have had the obvious luxury of ‘time’ in attempting to meet the required measures. The largest banks in the world would have had little choice given their size, complexity, and the number of regulators involved across borders. Unfortunately, one potentially large downside of early adoption is choosing your dance partner too early. As far back as 2004, many major banks around the world had already selected Basel II solutions providers based on RFPs which clearly indicated that ‘no’ solution in the marketplace was complete. At that stage the banks would simply have been wagering that, of all the incomplete solutions on the market, the vendor they had selected would not let them down.

With the first quarter of 2007 now safely behind us, many early adopters are finding that they may have lost that wager. Unfortunately, for them, many of the initial license agreements were written for 5 years and with a staggering sunk cost and possibly no fully functioning production system as yet, they would be understandably reticent to approach their board to admit failure and ask for a fresh budget. Even more unfortunate is the role that the solutions providers themselves have played. Some have pocketed a substantial capital outlay, along with what would already amount to several years of 20% ongoing ‘support’ fees. One might imagine that these substantial revenues would guarantee a quick and decisive implementation, and no-fuss on-going support, but in fact the reality is quite the opposite. Some banks have now been struggling for years to implement their purchase, while some vendors’ support teams are only contactable via email, taking several days to respond, and when they do respond, quite often appear to be miles wide of the mark.

One major bank had accumulated a sunk cost of $4.2 million on software licensing alone, and had attempted unsuccessfully for 3 years to implement them vendor supplied solution, with no vendor representatives available on-site. While attempting to validate the bank’s current Basel I figures against those produced by the vendor’s package, they reported a defect that “it appears that the software is not recognising the 50% Risk Weight ceiling for derivatives transactions.” Now, of the relatively few pages in the April 1998 Basel I update, 26 in total, a simple word search for ‘50%’ reveals 17 occurrences, only one of which is related to derivatives transactions. The vendor came back to the bank requesting that it be more specific in citing the actual offending paragraph.

But…there may just be a solution on the horizon which will astound you based on cost, ease of installation, and its genuinely friendly and effective ongoing support. Our goal is to form long term partnerships with our customers and we realise that the key to this lies in the initial quality of our product and our after-sales support … Why not talk to us at RegCap?