UK banks blame FSA and EU as they fall behind in the compliance race

London -- UK banks are slipping behind in their preparation for the operational risk portions of Basel II, as well as lowering their expectations of the level of compliance they will be able to achieve. Many firms are quietly beginning to blame the country’s regulator, the Financial Services Authority (FSA). They say the supervisor has been consulting less constructively with the industry lately and that many key issues remain unresolved, making it difficult for firms to push ahead with implementation. Defenders of the regulator, on the other hand, say the organisation is doing its best under difficult circumstances, which include having to cope with an increasingly muddled political process within the European Union.

While there is little argument that UK banks are among the best prepared in the world for the operational risk portions of Basel II (the FSA began issuing draft guidance more than two years ago), critics argue that much of the momentum of the early days has been lost. Indeed, a recent study by consultants KPMG showed that "on a UK basis, there’s been quite a shift away from the advanced measurement approaches (AMA) to the standardised approach (STA)," says Jane Leach, a partner with the firm in