U.K. banks get new compliance rules.

U.K. financial industry regulator the Financial Services Authority (FSA) has announced new rules for banking industry compliance with the credit risk requirements of the Basel II accord. The Basel II Framework sets out the guidelines for adopting more risk-sensitive minimum capital requirements for European banks. It reinforces these requirements by laying out principles for banks to assess the adequacy of their capital and for supervisors to review such assessments to ensure banks have adequate capital to support their risks. The accord also enhances transparency in banks' financial reporting.

The FSA issued its proposals in a paper--"Strengthening Capital Standards"--detailing the key aspects of U.K. implementation of the European Union's Capital Requirements Directive (CRD), which is closely linked to Basel II. A key plank of this will be massive changes to internal processes and IT systems to enable banks to profile and monitor credit risk exposure when the Basel II accord becomes effective in 2007.

The FSA said that even though aspects of the CRD have not been finalized, it wants to provide banks with as much early clarity as possible on the likely changes that will be necessary.

"The implementation of the CRD will involve considerable work for those firms on which it impacts as they undertake the necessary systems and risk management work required by the directive," the FSA paper states.