Basel II implementation, will be as "difficult and as important" as drawing the accord. The warning comes from the Central Bank governer responsible for the project.

Although about 100 countries have signalled they intend implementing the accord before the end of the decade, significant obstacles lay ahead.

The comments came from Jaime Caruana, the governor of the Bank of Spain. He also chairs the Basel Committee on Banking Supervision.

The intention is complete finetuning of the accord in Spring 2006, phase it in during 2007 and have it fully implemented by 2008.

Mr Caruana was speaking at conference organised by the London School of Economics' Financial Markets Group.

A particular concern is that Basel II rules are going to be applied across mulitple juristictions. The rules on regulatory capital, in theory will be harmonised. National legal infrastructures, business conditions and market practice will still be in place.

Banking supervisors, who typically reside in the world's central banks and regulatory agencies will have to co-operate a lot more. Consistent implementation of Basel II will lead to a level playing field for international banks.

National sovereignty issues are likely to play a part. For example, countries have asked for 149 national exceptions.

The largest area to be tackled involves regulation of international banks. Should they be supervised where their headquarters are or wherever they have local operations.

Developing nations, Mr Caruana warned, should only implement Basel II when they are ready.

Basel II is a regulatory framework, concentrating on regulatory capital of banks. The amount of required capital is dependent on each banks individual risk profile.

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