In releasing the paper, the UK watchdog said it was mindful of "the industry's long lead-time to make the necessary systems changes and is committed to providing firms with as much early clarity as possible".

Hector Sants, FSA Managing Director, says: "The introduction of the Capital Requirements Directive will mark a huge step forward in developing a modern capital framework that will improve the risk sensitivity of capital standards for firms across the EU. Considerable uncertainties remain, however, not least in the timing of its introduction."

Final agreement between the Council and the European Parliament would need to be reached by June 2005 if the industry is to have the requisite 18-month preparatory period for Basel II, which takes effect in 2007. Other work being carried on jointly by the Basel Committee and the International Organisation of Securities Commissions (IOSCO) on the treatment of counterparty credit risk is also identified by the FSA as problematic for large firms, "particularly in terms of systems development and potential capital impact".

The FSA also cautions that input from the Committee of European Securities Regulators (CESR), into further European rule-making on the Markets in Financial Instruments Directive (MiFID), will also impact on scope of application and systems and controls.

The crushing weight of new regulations and rules on the financial services industry was the source of much hand-wringing yesterday at Finextra's annual City Technology Strategies conference and exhibition, Finexpo CTS. The issue was also picked up by Finextra's annual Financial Technology Strategies survey and report, which finds financial market firms preparing to raise IT budgets in an effort to boost operational efficiencies and comply with regulatory demands for increased information.

The full report, Financial Technology Strategies 2005, is available to order online: Financial Technology Strategies 2005.