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Warning on Basel II conformance: banks have been cautioned against a tick-box approach.

Document Cited in Related
Vincent
AuthorBerens, Camilla
PositionRisk Management

Banks around the world are likely to implode if they fail to take the risk management guidelines in the proposed Basel II regulations seriously, a risk expert has warned.

Speaking at a recent briefing in London, Dr Colin Lawrence, a consultant with 20 years' experience in risk management, trading and capital markets, said that merely ensuring technical compliance was a "waste of time".

The Basel II accord rewrites banking safety rules with a new focus on operational risk such as loss from fraud, computer failures and acts of negligence. Operational risk came under the spotlight in 1995 when Barings derivatives trader Nick Leeson lost more than 830 million [pounds sterling] betting on the Nikkei market. The collapse of Barings led regulators to push for banks to tighten their internal controls.

Speaking at a briefing organised by law firm Sprecher Grier Halberstam, Lawrence, managing partner at LA Risk and Financial, said that some banks could be tempted to "bring in the experts and tick boxes", but he pointed out that they would do so at their peril. He said that the danger of such a tick-box culture would lead to "benign neglect", in which the parameters were too narrow and underlying risks were overlooked.

Lawrence, who has held senior posts in a number of US and European banks, said it was essential to bring in the human clement to risk...

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