Wolters Kluwer Roundtable on the U.K.’s FCA Digital Regulatory Reporting Work Program Reveals Desire for Standardized Digital Model

While barriers remain, a standardized Digital Regulatory Reporting Model looks desirable

 Wolters Kluwer has released the findings of its industry roundtable on the Financial Conduct Authority’s (FCA) Call for Input on Smarter Regulatory Reporting

And there appears to be a real desire for a standardized Digital Regulatory Reporting (DRR) model, even if there is a realization that this could prove to be elusive.

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The U.K.’s FCA issued the call for input in February 2018. As part of its ongoing commitment to be at the center of regulatory insight, Wolters Kluwer provided written recommendations and also hosted a roundtable in June, providing an opportunity for 50 senior bankers, lawyers and consultants to discuss the concept of DRR with the regulator. The roundtable acknowledged that while straight through processing of regulatory returns is coming, a circuitous path remains as kinks get worked out.

Wolters Kluwer has now summarized the main themes to come out of the roundtable in “Taking Digital Regulatory Reporting From Concept to Reality.” The chief aim of the roundtable was to provide a forum to debate issues — legal, technological and regulatory — that could facilitate or impede the introduction of DRR.

In its DRR project, the FCA, in conjunction with the Bank of England, invited financial institutions to explore ways to work smarter on these activities by delegating much of the hard work to technology. Success in the endeavor, as the FCA put it, “opens up the possibility of a model driven and machine readable regulatory environment that could transform and fundamentally change how the financial services industry understands, interprets and then reports regulatory information.”

“Now is the time to ask the tough questions when it comes to the future of DRR,” commented Claudio Salinardi, Executive Vice President and General Manager of Wolters Kluwer’s Finance, Risk & Reporting business. “Most importantly, we need to ask what exactly will machines be asked to do? And we should ask whether they will be able to convey enough information accurately and consistently to bankers and regulators to permit them to draw the right inferences and insights about their institutions and the financial system, respectively.”

Participants broadly agreed that a standardized data model is the best foundation for a DRR system. But there are solid reasons to doubt that one will be implemented for many years – perhaps five at best, but more likely 15 to 20. Some participants noted that standardization efforts covering certain spheres of

financial activity have been tried, with only mixed success.

“It would seem as though a true standardized DRR model would have to be as inclusive as possible, but variations in the scope of architectural frameworks and in supervisory standards and practices in different locales would limit the effectiveness of such a model,” Salinardi added. “Something more limited in scope was thought to have a better chance of success. A workable model that was intended to cover a certain regulatory scope, or that was created to apply in a single country, might be an easier bar to clear. It may also be the best starting point toward a more standardized data model.”

Cooperation and collaboration of all sorts were also big themes during the discussion. Much consideration was given to whether DRR could be implemented using a utilities model, in which relevant compliance and reporting obligations from a group of banks were ring-fenced, possibly to be outsourced to a third party.

Opinion was mixed. Outsourcing might work on tasks on which banks don’t compete, such as know-your-customer provisions. Financial institutions generally have a poor track record when it comes to sharing information and working together, one participant observed. But even if a utilities model proves impractical, other steps to facilitate cooperation might succeed.

Some bankers seemed skeptical not just over whether various hurdles could be cleared, but whether crossing the finish line would feel much like victory. They wondered if digital reporting would be a significant advance on regulatory compliance and reporting as they exist today, and whether the promise of enhanced efficiency and reduced cost will be kept.

“Taking part may produce a victory of sorts, however,” Salinardi noted. “Making regulations more clear and precise, and overhauling data management architecture by updating systems and integrating them around a central data warehouse, were highlighted as vital intermediate steps that will be their own reward. If supervisors and institutions put in the effort, it should allow them to work smarter, no matter how reporting obligations are fulfilled.”

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