In a market that is often perceived to be old fashioned and slow to take up new technologies, the FSA took the upper hand in March when it confirmed its framework for inte- grated regulatory returns.
For the first time, the FSA defined a technology that, alongside XML (eXtensible mark-up language), regulated firms must use to return their data – XBRL (eXtensible Busin-
ess Reporting Language).
Paper is just not an option in this case
as data must be submitted to the FSA electronically. But is this new mandatory tech- nology as complicated as it sounds? Does
this mean that Mandatory Electronic Reporting demands that the financial services market must embrace a new technology
revolution or will it be evolution?
There are some who say that technology and financial services do not mix, taking the view that technology will never replace paper. But if we take a look at the electronic trading activity over the past few years, there have been some great success stories in the marketplace.
For example, in the life and pension market, the growth of electronic trading has accelerated dramatically. According to the Focus Quotient Benchmark Research, in 2001, the majority of insurers were transacting less than 1 per cent of their business electronically by volume but in just three years the number of transactions processed electronically in the market has increased substantially, with one in six new business transactions now being processed electronically.
With other similar success stories emer-
ging from the mortgage and general ins-
urance markets, we should be proud of
There has been some confusion in the UK financial services market over what needs to be used and who needs to use it.
The FSA's original intention was for both sectors of the community – the product provider and the intermediary – to use XBRL to submit their data.
There has since been a shift in thinking by the FSA and now the intermediary will be required to submit their data using XBRL but the product provider will be required to submit data both by XML and XBRL.
The good news is that XBRL is not a completely new technology. It has been tried and tested by UK institutions such as Companies House to collate organisational information and the UK accounting stand- ard, with GAAP using XBRL for the collation of accountancy data.
Having announced the requirement for the two technology data standards, XML and XBRL, the positive message is that the FSA has not left the industry to its own devices. It has sought the advice of technology companies, creating a panel of 12 software suppliers that currently provide relevant systems to those organisations regulated by the FSA, called the FSA software suppliers advisory panel. The objective is to create a “best of breed” process for collating the data from regulated entities.
Insurers and lenders must surely welcome the news that the FSA has reviewed its initial decision and selected XML as its data language as XML is already an established technology in the UK financial services market.
Over 70 per cent of the leading life and pension organisations are using XML technology to transact new business electronically. Using XML means that insurers and lenders need not throw out their existing IT systems. XML messaging allows components to be integrated with existing legacy systems, in-house back-office systems or underwriting systems. XML components built for the capture of data for the FSA requirements can also be reused in other parts of the sales process and across multiple distribution channels.
Eight months in any industry is not a long time but for many of the big organisations in the UK financial services market, with extensive IT infrastructures operating across multiple distribution channels and organisational divisions, the April 1, 2005 deadline is going to be a serious challenge.
The advice I would give would be, not to see mandatory electronic reporting as an isolated challenge requiring a single bespoke solution. The FSA will not stand still and the market will face continuous change, so creating a static solution for MER may leave you with a legacy solution that cannot adapt and change in response to future requirements.
The criteria for a successful solution is one that is:
Built to change
l A technology solution fit for today's market needs to be flexible enough to cope both with internal and external business requirements.
Allows for incremental development
l A technology solution needs to be able to grow with the organisation and with future business and regulatory requirements. Component based solutions can be implemented on an incremental basis depending on the project scope.
Quick to deploy
l With only eight months until financial organisations need to start submitting their aggregated data, time is of the essence. Solutions must be quick both to build and deploy.
Reusable in other areas
of the business
l To maximise return on investment, components of a solution should be able to be reused in other areas of the business or within other distribution channels.
MER need not mean an IT revolution for the UK financial services market. Organisations which have already invested in XML technology will have a distinct advantage in the marketplace but for those starting from scratch it is not too late.
In the experience of Focus, it is possible to build and deploy an XML technology solution in just three months. Organisations may already have the building blocks in place for MER and it is more an evolution of the technology that is required rather then a revolution.