have found that local managers may be unfamiliar with the parent organisation ’ s plans for basel ii : this understandably tends to make host supervisors less confident about the quality of an organisation ’ s planning and its readiness to move to basel ii. moreover, it increases their need to ask more questions, some of which may duplicate the questions that the home supervisor or other host supervisors are asking. if a bank has already developed sufficiently detailed and transparent plans for its application of basel ii, a substantial portion of the hard work has already been done. sharing those plans with home and host supervisors, and with managers throughout the bank ’ s operations and locations, should not require too much more effort. instead, the bank should be in an even better position to focus on running its business confidently while still implementing its plans carefully for the future. validation one of the greatest challenges – for both banks and supervisors – of the basel ii framework is the need to validate the systems and processes used to generate the parameters that serve as inputs into the irb approach to credit risk. although validation is foremost the responsibility of banks, supervisors must have a thorough understanding of validation in order to ensure overall integrity of bank ’ s activities in this area. in recognition of the importance of validation the committee recently published six principles on validation that will guide our future work. we also published a working paper called : “ studies on the validation of internal rating systems ” let me mention these principles briefly. firstly, we set out our understanding that validation is fundamentally about assessing the predictive ability of risk estimates and the use of ratings in credit processes. secondly, we stress that the primary responsibility for validation lies with the bank itself, while the supervisor ’ s responsibility is to review the bank ’ s processes and outcomes – a point which i think we all agree is very important. the remaining principles relate more to the process itself. we note that validation is a likely to be an ongoing, iterative process which will require an ongoing, iterative dialogue between banks and supervisors. then our fourth principle reflects that there is no single validation method, or universal tool for validation, even though techniques may converge over time. we also highlight, in our fifth principle, that validation should encompass both quantitative and qualitative elements – validation is not a purely technical or mathematical exercise, but should also include an assessment of controls and other qualitative factors. finally, we stress our view that validation processes and outcomes should be subject to review within the bank, by parties which are independent of

in my intervention. i will begin by sharing first, in my personal capacity, some thoughts regarding the need for standards to evolve and keep pace with the times, whilst ensuring that new standards are not unduly burdensome and do not hinder firms ’ abilities to innovate. in this respect, i ’ d like to look forward and address some of the work we are doing to ensure that the new international capital standard - basel ii - remains flexible and able to adapt to emerging practices and risks. many of you have a very strong interest in the efforts the committee is undertaking to consider how best to apply basel ii to certain trading - related exposures using the latest tools being developed by the industry. while this work is still ongoing, i would like to share a status report with you on that effort. finally, i will highlight some of the work that we are undertaking to promote a smooth and consistent transition to basel ii, including our plans to conduct a review of the calibration of the framework, as well as our efforts in the field of supervisory co - operation and validation, and the key messages that are coming out of these initiatives. the evolution of standards and regulatory burden allow me to begin by sharing some personal thoughts on a topic that has captured some attention recently : the view, held by at least some in the financial services sector, that the tide of regulation has risen to a high water mark. in my own conversations around the world, i have heard similar concerns from some bankers. some point to the long debates that have taken place in the accounting profession. others point to regulatory reforms underway, such as those to transpose and implement the committee ’ s own work on basel ii, the new capital framework. it should be said that the industry itself recognises that there is work to be done in these areas. however, i do have sympathy for the sense that much is changing today. i understand that keeping pace with these changes can absorb resources and require attention. in this sense, and especially in relation to our work on basel ii, i see some merit in concentrating, at least for a while, on completing current regulatory work, and on ensuring the quality and consistency of its implementation. let me expand a little on this point. financial service providers often compete on their ability to create value by offering new products and services to customers. as just one example, isda represents institutions that are among the most active in the private negotiation of derivative instruments. these instruments are initially tailored to unique