As Basel II and new requirements for managing and reporting capital and risk are getting more and more attention, SAP has launched a solution to address some of the potential Basel II stipulations. The Basel II functionality will be integrated with the mySAP banking solution to meet requirements for risk exposure and capital calculation, supervisory review and disclosure processes.
While Basel II is not expected to be enforced until 2006, many financial institutions are already looking for ways to work the new requirements into existing risk management processes. "On one hand Basel II is a fairly long way down the road, but customers we have talked to say that a few topics have to be addressed now and decisions have to be made," says Jens-Peter Jensen, director of business development for financial services at SAP. "Basel II is a major infrastructure investment for the banking industry and it changes current infrastructures in place."
Jensen adds that regulatory requirements and internal risk management have thus far remained fairly separate in terms of technology. "Now Basel is driving banks to consolidate and integrate their solutions," he says. The new functionality is a natural extension of mySAP's risk management framework, says Jensen.
More specifically, the Basel II functionality in mySAP includes a historical database to calculate and validate credit-risk parameters. "This is an information layer that stores information down to the single-transaction level and stores it in a flexible way with regard to different product requirements," says Jensen. "On top of the information layer we offer different analytics for exposure calculation, capital calculation and risk parameter calculation and validation."
But for the parameter calculation and validation the mySAP solution can be integrated with ratings engines. "We work together with banks from different segments and these banks have different kinds of ratings engines in place," adds Jensen. The solution also has a layer for reporting, including output for disclosure processes as well as internal-reporting processing and an interface with regulatory reporting vendors.
With Basel II requirements still not complete, the mySAP Basel functionality will be an ongoing work-in-progress. "Today we are offering the solution covering what can be addressed and what is of primary concern to banks today and step by step we will complete the solution in line with the requirements from Basel," says Jensen. The data-warehousing component of the product, dubbed the Financial Database, will begin shipping by the end of this year.