Companies advised not to invest in niche Basel, AML solutions, says Forrester

Financial organisations are feeling the pressure of having to comply with increasingly stringent global regulations, including those of Basel II and anti-money laundering (AML) legislation.

Faced with these challenges, they should not invest in piecemeal solutions that only address niche regulatory requirements. Instead, they should use the opportunity to improve their overall risk/return profile, and ultimately their shareholder value.

"By gaining and acting on a complete view of corporate risk, financial organisations will not only comply with the host of new regulations, but also benefit from using risk information in a truly intelligent manner," says Kerry Evans, sales manager: financial services at SAS Institute.

"For example, while gathering data in order to report for regulatory purposes, they can improve knowledge for decision-makers, leading to increased competitive advantage."

Basel II regulations must be adhered to by 2006, and many software vendors have leapt onto the bandwagon. As Forrester Research points out, just as for Y2K, software vendors will use the Basel 11 regulation as a compelling sales tool. (Source: Forrester Research, WholeView, TechStrategy Research: Basel 11: Turn Chaotic Apps Into An Opportunity, by Charles Homs, with Remus Brett, David Metcalfe and Dr. Therese Torris. 29 May 2003.)

The report notes that to turn Basel II "into a business optimisation process instead of a costly technology exercise, IT vendors must emphasise the unique chance to re-engineer a bank's business model."

It notes that SAS provides the most comprehensive offering beyond pure Basel II compliance, saying that other vendors' offerings focus "on how to become Basel II-compliant - instead of improving visibility into risk exposure".

Finance firms are also facing challenges in the area of money laundering, as well as from increasingly sophisticated fraudsters and regulatory requirements.

In SA, the Financial Intelligence Centre Act (FICA) of 2001 requires certain businesses to detect and report on suspicious transactions to the Financial Intelligence Centre.

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The Act seeks to identify the proceeds of unlawful activities, and combat money laundering by forcing businesses to proactively report on unusual transactions which may indicate that money is being 'cleansed'.

South African banks are required to have reporting systems in place, a key requisite of which is an application to detect suspicious financial behavioural patterns.

Forrester Research believes that over the next five years, "the sophistication and scope of money-laundering techniques will increase as criminals target new geographies and new lines of business - such as life assurance and leasing". (Source: Forrester Research, WholeView, TechStrategy Research: Enterprise Visibility Helps Stop Money Laundering, by Remus Brett, with David Metcalfe and Dr. Therese Torris. 25 April 2003.)

It advises firms to buy, not build, a solution, and use AML insight to fuel enterprise applications.

"Converging market forces make 2003 an ideal time to buy packaged apps, as licence costs are at an all-time low and technical standards are maturing...Executives should understand the power and reusability of the visibility created by their AML systems and extend this approach to foster their overall enterprise visibility strategy," Forrester says.

There are a number of standalone anti-money laundering packages on the market, but again, banks should not be tempted to invest in point solutions that only address one particular reporting requirement.

"A sophisticated analytical system will fulfil other legal and reporting needs as well," says Evans. "And with one solution addressing all the requirements, banks do not need to build relationships with a number of different vendors, nor rely on numerous suppliers for support, thus saving on costs, integration and time."