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Happy returns

With the advent of mortgage regulation, general insurance regulation and depolarisation, even the most dedicated compliance officer could probably be excused for allowing the FSA&#39s proposal for electronic reporting to slip down their priority list in recent months.

This may be understandable but it may yet turn out to be a painful oversight if plans are not now being put in place to meet the responsibilities announced in two policy statements published on March 31.

The FSA&#39s policy statement 04/08 Regulatory Reporting – A New Integrated Approach, includes feedback on CP198 and PS 04/09 Reporting Requirements for Mortgage Insurance and Investment Firms and Supplementary Consultation on Audit Requirements, including feedback on CP197, with their annexes but not the appendices, stand a full 3.5cm deep of reading matter. I have not bothered to count the number of pages as I might lose the will to live even before I get to the new Initial Regulatory Taxonomy.

These new requirements take effect from April 2005 for retail investment activities, mortgage mediation and insurance mediation – in other words, all the areas covered by IFAs and the soon to be regulated mortgage and general insurance advisers.

Given the new systems that will almost certainly be essential to meet these obligations, that is under a year to get everything in place and working properly.

I must say that broadly I am very supportive of what the FSA is trying to do with integrated electronic reporting. The objectives are sound and could not only deliver more information, more effectively to the regulator but if implemented in the right way could also create savings for practitioners as well as the FSA. Now we come to the real issue. How realistic will the implementation be?

It seems to me that the FSA is faced with two options. It can either work with the industry to identify the optimal approach to these issues or it can enforce a solution on the market which may at best be costly and at worst unworkable.

There are a number of situations which will define if the FSA wants to dictate to the industry or work with us.

For example, will it take a path which is likely to lead to industry practitioners using system to system messaging to submit their returns? This has the prospect of far greater saving for all involved.

The alternative would be to take an approach that will result in most advisers using a browser-based approach to submit data.

On this basis, there will no doubt be significant savings for the FSA but, from the industry perspective, it is likely to lead to far higher costs for advisers and providers, which will inevitably be passed on to consumers in the long run.

The FSA has already agreed that regulated firms using the browser route will be able to complete their returns in multiple sessions, entering some of the information, saving it and returning at a later date to add more.

Only when a complete return is assembled will the return be released by the system to the FSA. This is to be applauded but it would be better still if advisers could generate the necessary information from their administration systems and submit them electronically.

Here we come to a small problem. As far as I am aware that there is not single system capable of meeting the needs of an adviser practising in all three retail activities – investment, mortgages and insurance.

Given that, for nearly a decade, understanding adviser technology has been my main business activity, I suspect that if such a system exists someone would have made me aware of it by now. Clearly, this is an obvious gap in the market but it cannot be realistic to expect such a single system to be built and deployed in the time available before the introduction of electronic reporting.

The FSA is currently stating that, where messaging is to be used to submit returns, it will require a single message to cover all the regulated activities of a firm. If they were to be prepared to receive a segmented message covering each group or regulated activity, this would make it viable for existing system suppliers to build reporting modules on to their present software.This could considerably red-uce the burden for firms using such systems to adopt electronic reporting.

I am not suggesting that such a concession should be in place in perpetuity. After a reasonable period, say a couple of years, there could be a requirement to converge to a single electronic filing. If the FSA were to adopt such a pragmatic approach, it could be seen as a significant action on its part to ensure that the whole industry benefits from electronic reporting, not just the regulator.

Another area that concerns me is the proposals for returns to be based around a company&#39s year-end. The idea makes sense but not the timescale proposed.

The policy statement makes it quite clear that concerns have already been raised over this issue but that the FSA is still seeking to impose a deadline of just 30 working days from the year-end for returns, including financial information to be available. This compares with the 10 months required by Companies House, reduced to seven months in the case of publicly quoted companies.

Talking to accountants,I gather that there is talk of European regulations reducing these timescales by a couple of months, but to take it down to six weeks must be absurd. This does not give sufficient time for a company&#39s auditors to carry out their duties. You can have quick information or you can have audited information. The FSA need to recognise that you cannot have both.

It is important to put the above issues in context. So far, the FSA has taken a very constructive approach to electronic reporting. It has est- ablished a software suppliers advisory panel to enable technology companies to get a clear understanding of what will be expected of systems for electronic reporting. It has also held a series of industry briefings to make each of the key constituencies aware of what it has in mind. I can think of few occasions where a regulator has been so willing to help the industry understand new requirements.

Now it just needs to go a little further and work with the industry to understand some of the practical constraints that everyone has to work to. If it does so, these changes can be a massive benefit to all concerned rather than yet another regulatory burden.


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