Gary Izzat explains the new electronic system for FSA returns

Since 14 January, the FSA significantly increased the number of firms it regulates, making the existing system of paper and spreadsheet based returns unmanageable.

To alleviate the strain the FSA is introducing mandatory electronic submissions for all regulated firms.

The integrated regulatory return (IRR) will be one of the challenges that the insurance industry will have to face in the next 12 months under statutory regulation.

All authorised firms will be required to complete the IRR every six months from 1 July 2005, although larger firms may report quarterly and smaller returns annually. The returns will also need to be submitted within 30 days of the end of each period.

Reporting electronically
So what will the IRR cover? It will aim to encompass all the basic data required by the FSA as well as specialised information on regulated activities. These electronic returns will allow the FSA to collect, validate and analyse all the required data more efficiently.

How will firms report electronically? This currently appears to be one of the major issues, as the FSA has made no clear statement as to the approach it will take. Initially, submissions will be made on a web-based form.

The FSA wants a system-to-system submission method based on something called: XBRL - eXtensible Business Reporting Language, which is an international royalty-free standard specifically developed for financial and business reporting.

The advantages of XBRL to consumers of financial information (that is to say the regulator) are self evident: the information is consistent, well defined, more accurate, and in a format that can be immediately processed electronically.

Although the FSA has been strong in its support for XBRL, has already confirmed this method will not be available before July 2005.

David Anderson, head of information management at the FSA, says: "Over time we expect the use of XBRL will help to make the FSA easier to do business with - a key objective set out in our business plan.

"It will improve internal efficiency and effectiveness of our regulatory reporting function, provide greater transparency around information requirements for regulated firms and ensure that we are more responsive to changing data needs."

The FSA has joined the XBRL UK organisation in order to understand the technical development plans and presumably to better market the solution to all involved.

But there are those that say XBRL is not the solution. They suggest it is far too complex and it involves a daunting amount of change. These parties will have to be convinced that this format will make it easier to report to the FSA.

So if XBRL is not going to be ready until July, what is the answer for any authorised firm wishing to report on a system-to-system basis, especially considering the design and development time for any IT solution that needs to be implemented?

Will there be an intermediate XML initiative? Will the FSA offer an alternative solution? How have the authorised firms been preparing for the oncoming reporting requirements, especially if the system-to-system solution would be the preferred route?

Are the market software providers developing interfaces to allow disparate systems to provide the required basic information in an XBRL format?

Reporting process
At a recent presentation to the Lloyd's IT Club on integrated regulatory reporting, when the audience was asked this question not a single hand was raised.

The FSA's ongoing judgment of authorised firms will be largely based on what the firms themselves tell the FSA through the reporting process.

If a firm fails to report on time, in the right format, with the appropriate information, this will inevitably lead to a less than satisfactory perception of the firm by the FSA and could prompt an avoidable visit.

Firms should start preparing now to ensure that they have the appropriate information ready in good time, regardless of the format. IT

' Gary Izzat is with Navigant Consulting

For more information on XBRL see: