How can technology help firms with regulatory reporting?

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That’s something the FCA has been exploring.

The regulator has issued an update on its Digital Regulatory Reporting (DRR) project. The project has been investigating how technology could make it easier for firms to meet their regulatory reporting requirements – as well as improving the quality of information they provide.

What is the DRR project?

The project was born out of a ‘TechSprint’ held in November 2017 by the FCA and the Bank of England.

It stems from a desire to simplify the regulatory reporting process – currently a manual process that involves over 20,000 rules across 58,000 firms.

As the video explaining the project says, ‘Each firm must interpret the rules and data requirements themselves and when firms are asked to provide data to regulators the differences in interpretation often lead to confusion, duplication and inefficiency, which is costly in terms of time and money’.

The DRR project aims to use innovative technology ‘to provide clarity and create a shared understanding around rules and data through a collaborative platform’.

At the TechSprint, participants developed a ‘proof of concept’ which could make regulatory reporting requirements machine-readable and executable. By transforming rules into code – and connecting the regulator to banks through blockchain and API technology – data should be made easier to share, creating the potential for automated, straight-through-processing of regulatory returns.

The benefits of this would be significant:

  • The accuracy of data submissions could be improved
  • The cost of data returns could be reduced
  • Changes to regulatory requirements could be implemented more quickly
  • A reduction in compliance costs could lower barriers to entry and promote competition

What has happened to date?

Following the TechSprint and proof of concept, the FCA published a Call for Input in February 2018. The Call for Input outlined the technical steps that developed the proof of concept and asked for views on ways the process could be improved.

In October 2018, the regulator published a Feedback Statement summarising the responses it had received to the Call for Input and outlined next steps.

From June to December 2018, phase 1 of a pilot took place. This saw the FCA and Bank of England work together to build on the proof of concept and evaluate the potential to scale it up, and involved some of the UK’s biggest banks:

  • Barclays
  • Nationwide
  • Credit Suisse
  • NatWest
  • Santander
  • Lloyds Banking Group

You can read the report on phase 1 of the pilot on the FCA’s website.

A second pilot phase opened in February this year. This phase will focus on addressing some of the gaps identified in phase I, in particular exploring economic viability and identifying how DRR could apply to different product groups.

Participants in this new phase are:

  • The Financial Conduct Authority
  • The Bank of England
  • Barclays
  • Credit Suisse
  • HSBC
  • NatWest
  • Santander
  • Lloyds Banking Group

A focus on innovation

The Digital Regulatory Reporting project is part of the FCA Innovate programme, alongside its Regulatory Sandbox and Global Financial Innovation Network. We identified innovation as one of the big headlines for Compliance teams in 2018, something that shows no sign of changing in 2019.

Regulated firms that want to innovate – whether in terms of reporting, their own delivery mechanisms, or their marketing and financial promotions – need to ensure they meet the FCA’s requirements. Complying with the regulator’s rules remains essential no matter how innovative your approach.

Make the most of the digital options available to you

With growing numbers of new competitors driving choice and innovation, and recognition that you don’t need to be a start-up to be a disruptor, innovation is something increasing numbers of banks are pursuing.

If this is a route you’re going down, you will need to ensure you innovate in a compliant way.

And it’s not just for governance reasons. Although the potential penalties of non-compliance can be a good incentive, with your corporate brand inextricably linked with your approach to compliance, it’s vital commercially as well as ethically that you meet regulatory requirements.

If you are exploring innovative approaches to improved compliance, you may want to read our whitepaper, The benefits of automated workflow systems. It examines the benefits of automation for Compliance teams, and you can download a free copy here.

Nothing in this document should be treated as an authoritative statement of the law. Action should not be taken as a result of this document alone. We make no warranty and accept no responsibility for consequences arising from relying on this document.