Basel Accord Banking Laws Compliance

What Is Basel II?

Basel II is the second of the Basel Accords, which are recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervision. Basel II is an international standard that requires financial institutions to maintain enough cash reserves to cover their operational risks.

Basel II Compliance Requirements 

• Credit risks are separated from operational risks, and both are quantified.
• Capital allocations by institutional managers are more risk sensitive.
• Economic and regulatory capital are more closely aligned to reduce the possibility of regulatory arbitrage. 

Further clarifying its position, the Accord lists the following areas of operational risk:

• Internal and external fraud.
• Damage to products, business practices, or physical assets.
• System failures and business disruptions.
• Interruptions in business execution, service delivery, or process management.

Basel II Compliance and Fraud Prevention Challenges

Under Basel II, organizations are required to monitor, assess, and constrain risk. Compliant banks must be able to ascertain risk within their internal systems, establish controls, and monitor systems on a day-to-day basis. These activities, which must be transparent and repeatable, are subject to scrutiny by auditors.

The Basel II compliance challenge lies in obtaining an appropriate level of visibility across financial activity occurring at the application layer, and then tying that back to risk. All too often, the required data is overwhelmingly difficult to correlate or simply isn’t captured by traditional logging systems. Beyond that, traditional logs have no way to link disparate actions to establish a risk profile for user behavior. Suspicious activity may occur over a period of time and across multiple systems, further obscuring linkages between fraudulent activities.

The Luminet Solution

Luminet fraud prevention software monitors all user activity across multiple systems in real time—24/7/365—giving financial institutions a unique way to assess and reduce operational risk as defined by Basel II, including internal fraud, business disruptions, and systems failures.

Luminet’s powerful analytical engine can pinpoint suspicious behavior—based on business rules that you’ve defined—and generate real-time alerts related to questionable activity patterns. These alerts allow you to immediately zero in on anomalies, including disruptions to systems or performance levels.

Post-event analysis includes the ability to apply new rules to recorded information, which auditors can review in a screen-by-screen replay. In this way, they can gain critical contextual information and understand what actually occurred.

Built with Substantial Business Process Functionality

Learn how Luminet detects and prevents fraud in the banking industry.