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XBRL – The Financial Services Authority (FSA) UK Context

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1 XBRL – The Financial Services Authority (FSA) UK Context
The FSA’s perspective on the use of XBRL (eXtensible Business Reporting Language) for data exchange with the industry in the UK and other financial regulators Presented by : Ayan Kar XBRL Cross Sector Seminar (Members only session) Madrid, Spain, 1st Jun 2012 Copyright © The FSA, UK, 2012

2 Abstract: About the presenter:
This presentation will provide the attendees with a background and understanding of the UK’s regulatory architecture and key challenges we might face in adopting XBRL. When setting technical standards for Financial Regulatory Reporting the FSA must consider the implications to the UK Financial Services industry and the need to support effective collaboration with other UK and European regulatory bodies. The adoption of new standards must balance the potential benefits with the needs of Financial Institutions to meet their reporting obligations. In 2006 the FSA evaluated XBRL technology as a means to implement Regulatory Reporting but decided in favour of XML and the development of its own proprietary specification. In this presentation I will discuss our latest intentions as influenced by the impending European regulatory initiatives and the UK Government's regulatory reform bill. About the presenter: I am Ayan Kar, the Lead Data Architect for the FSA. It is my role to define the data architecture strategy and the roadmap for the FSA. I hold an Engineering and Business Administration degree and have spent most of my career working on Data Modelling, Data Architecture and Software Development. A large part of my industry background in the last few years has focussed on the Financial Institutions typically implementing regulatory regimes for some of the firms we regulate in the UK.

3 Agenda The FSA’s scope of regulation Data exchange methods
The historical background of XBRL in the FSA Regulatory reform in the UK Potential benefits

4 1. About the FSA “The Financial Services Authority (FSA) is a non-governmental body with statutory powers given to it by the Financial Services and Markets Act 2000.” (Source Key characteristics: Independent body that receives all its funding through a levy on the financial services industry Accountable to H.M. Treasury and, through them, Parliament Statutory objectives:  Market confidence Financial stability Consumer protection Reduction of financial crime Scope includes: Any firm or individual that carries out a regulated financial service market activity in the UK must be authorised by us, unless they are exempt. This includes over entities spanning across major financial organisations, small firms and independent financial advisors The regulatory reporting data: Collected using proprietary XML standards and there over 80 data items collected by the FSA as specified in out handbook Defined for the firms depending on its size and permissions granted to it

5 1.1. Our scope – who do we regulate?
We regulate more than entities within the UK that span different business types and are subject to different aspects of regulation. One of our key challenges lie in managing diversity of regulatory policies & the population. Breakdown by business types Breakdown by Legal Status Breakdown by Entities allowed to hold Client Assets (CASS) Firms in scope for MIFID ϕ Markets Conduct Regulation Circa 10% of Firms are subject to Prudential Standards for Banking, Investment Firms & Building Societies ϕϕ ϕϕ Firms most impacted by EBA and EIOPA directives ϕ Firms mostly impacted by ESMA directives Copyright © The FSA, UK, 2012

6 European Insurance & Occupational Pensions Authority (EIOPA)
2. Data exchange methods The existing data exchange arrangements are based on the Integrated Reporting Standards that were adopted in 2006, these are based on proprietary XML standards developed by the FSA. European Insurance & Occupational Pensions Authority (EIOPA) Prudential & Business Conduct (Financial Services & Markets Act 2000) XML TRUP MIFID (circa 4600 firms) CRD & CRR (circa firms) XML UK Regulatory Architecture (Internal Twin Peaks Apr 2012) FSA (Financial Services Authority) Prudential Business Unit (PBU) Conduct Business Unit (CBU) XML Solvency I (circa. 650 firms) XML / Ad Hoc XML TRUP European Banking Authority (EBA) Not Specified Open-ended investment company (OEIC) Insurance Firms Deposit Takers Investment Managers Services (UK) of an Overseas Firm Advising, Arranging & Dealing as agent Others The FSA Regulated Entities (Defined by FSMA 2000) European Securities & Markets Authority (ESMA) UK Regulatory Bodies H.M. Treasury Bank of England HMRC 6 Copyright © The FSA, UK, 2012

7 3. Historical background of XBRL in the FSA
We decide what data to collect and how to collect it based on the following criteria, these activities span multiple years: Amendment of the Handbook rules through a Legal process, Cost Benefit analysis and Public consultation Policy driven initiatives like, Integrated Regulatory Reporting, Liquidity, Solvency II and Capital Requirements Directive by the EU 2002 2003 2004 2005 2006 2007 2008 2009 2011 2012 2013 2010 May 2002 Sep 2003 Mar 2004 May 2005 Nov 2006 Apr 2010 Apr 2011 Jul 2011 June 2012 Mar 2013 XBRL consultation formally launched through, Consultation on Integrated Regulatory reporting – a new integrated approach 1869 CP197 Regulatory reporting (Consultation paper) CBA on XBRL explained key aspects being considered included cost to Firms and maturity of standards, David Kenmir’s speech to Complitech. The FSA embarks on the adoption of Integrated Regulatory Reporting (IRR) based on XML and rolls out GABRIEL (Gathering Better Regulatory Information ELectronically) EBA strongly recommends the use of XBRL for COREP and FINREP (COREP minutes on FSA website) FSA to publish its interim position on adoption of XBRL that is likely to, Explain the scope to be limited to CRD IV & SII Interim position subject to Reg Reform based changes in 2013 New Regulatory Reporting environment for the FSA (DP12) is published Use of custom XML re-iterated, however the review notes the increase use of XBRL provided in the IRR update statement. EIOPA announces that it will use XBRL for reporting and asks for feedback to its technical consultation (EIOPA announcement) We explain our intention to use XBRL for MLAR and RMAR returns, mentioned in, PS04/9: Reporting requirements – Feedback on CP197 Integrated Reporting update, re-iterates need for XBRL standards. Legal cutover to the new regulatory architecture for UK XBRL statement on use published by the FSA, decides not to adopt XBRL due to, Lack of XBRL experience in UK and hence the reluctance of the firms in adopting XBRL. No other regulatory body had adopted this as a standard and hence the benefit of cross border standardisation was low. (All updates sourced from

8 4. Regulatory reform in UK
Financial markets have changed in the ten years since our inception. The Government has decided that in today’s market it is appropriate for the prudential supervision of banks and insurance companies to be carried out separately from work to protect consumers and regulate markets. The Government has therefore decided that the FSA will be divided and its activities split between two new regulators. New revised distribution of firms The new Prudential Regulation Authority (PRA), a subsidiary of the Bank of England, will be responsible for ensuring our financial system is stable. It will supervise the ‘safety and soundness’ of around 2,000 firms. The new Financial Conduct Authority (FCA) will focus on getting a fair deal for consumers. It will regulate the conduct – the way a firm behaves and interacts with its customers – of some 27,000 firms, as well as the prudential supervision of around 24,500 firms.

9 4.1. Impact on data exchange
Data exchange arrangements post regulatory reform, CRD IV & SII implementation are likely to get more complex. Ad Hoc and XML / Unstructured MIFID (circa 4600 firms) TRUP / FPML XBRL CRD IV (circa firms) TBC?? Prudential non-CRD Submission to PRA European Insurance & Occupational Pensions Authority (EIOPA) UK Regulatory Architecture (post legal cutover Mar 2013) Prudential Regulatory Authority (PRA) Financial Conduct Authority (FCA) Data Sharing Branch (UK) of a Overseas Firm Banking Advising, Arranging & Dealing as agent Insurance Services (UK) of an Overseas Firm Insurance Firms Deposit Takers Others XBRL Solvency II (circa. 650 firms) XML / Ad Hoc XBRL TRUP / FPML PRA / Dual Regulated European Banking Authority (EBA) Consumer Conduct & Prudential Submissions (Financial Services Bill 2012) European Securities & Markets Authority (ESMA) Professional Entities Insurance Not Specified Open-ended investment company (OEIC) Investment Managers Services (UK) of an Overseas Firm Advising, Arranging & Dealing as agent Others UK Regulatory Bodies FCA Regulated H.M. Treasury Bank of England HMRC 9 Copyright © The FSA, UK, 2012

10 5. Potential benefits EU Regulatory Bodies The FSA UK Regulated Firms
Consistent Terminologies Reduced risk of misinterpretation Re-use across NSAs The FSA Faster time to implementation (since EU conducts the CBA) Consistency across industry sectors (specifically for overseas branches operating in UK) Reduced complexity of implementation across sectors UK Regulated Firms Implement once and re-use for other NSAs Common language across geographies A clear roadmap for changes

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