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Complitech Keynote Speech
18 May 2005

Good afternoon ladies and gentlemen. I am delighted to be here to speak to you about how the FSA's IT agenda will impact on the firms we regulate. I am responsible for the FSA's Regulatory Services Business Unit. Its mission is to contribute to the FSA's success as a risk-based regulator by making it easier for the FSA's customers to do business with us and for the FSA's staff to do their jobs. IT has a central role to play in helping us deliver this mission.

Many of you in the audience will see commercial opportunities in what I have to say, either from working with us or from working with your clients in the financial services industry. This leads me on to my first disclaimer: we procure all of our IT relationships through strict procedures, and advertise all of our large requirements via the OJEU process; so if any you were thinking of inviting me to New Zealand to watch the British Lions play please don't bother!

My second disclaimer is that I am not an IT specialist, so whilst I will take questions later I reserve the right to refer you to colleagues at the FSA who will be much better able to answer them!

Our IT Division is led by my colleague Darryl Salmons who recently joined us from De La Rue PLC. Darryl brings a wealth of experience with him. He has an extensive agenda for the future: this includes improving our business capability and effectiveness by leveraging the opportunities IS solutions can provide to any organisation; and making us much more commercially minded in the way we operate particularly with our suppliers.

The FSA is still a relatively young organisation: we were formally established in 1998, our extensive powers set out in the Financial Services and Markets Act came into force in December 2001, and we restructured ourselves last April. How many commercial organisations have been the result of a 10 way 'merger' executed over 7 years?

As you can imagine this presented a number of major challenges for our ISfunction. Firstly we had to survive merger, co-location in Canary Wharf and run our legacy IT systems through Y2K. Then we had to build the core operating systems to support the powers we were given by Parliament, and to support a new operating model that was designed and implemented in 2002/03. Late last year, and early this, we became responsible for the regulation of mortgage and general insurance business in the UK. This increased the number of firms we regulate by about 150% in the space of 3 months. The design and implementation of the transitional process and the ongoing regulation of these firms was highly dependent on technology. We are justifiably proud to have met these major challenges, but acknowledge that we have much to achieve in future: particularly in improving our day to day operations; and in the way we use technology to interact with firms.

The firms we regulate

We are now responsible for over 24,000 firms active in the wholesale and retail banking, insurance and investment markets. Inevitably this population is diverse. We deal with everyone from the largest and most IT literate, players in the financial services arena; to a large number of one or two person companies providing services in their local area, or product-specific niche of the market. In fact we categorise over 90% of the firms we regulate as 'small firms'. They aren't all as small as the example I gave earlier, but they do have a varying range of IT capabilities. In fact many still claim that they don't have a PC! We don't have a rule which requires firms to have one; but we do wonder how some of them cope given the amount of information available via the web etc, which is designed to help them run their businesses and service their clients more effectively.

We were most encouraged that of the 14,000 firms that became newly authorised as a result of mortgage and general insurance regulation, a little over 75% applied to us electronically. We gave them a discount on their application fee for doing so because of the efficiency gains we made from processing electronic applications. We may look to financially incentivise firms to communicate electronically with the FSA in future. We would probably do this through changes to our fees regime.

I will now run through the main firm facing IT initiatives in our 2005/06 development programme. We regard the firms we regulate as customers of the IT services that will be delivered as a result of these initiatives.

Integrated Regulatory Reporting

Arguably our biggest IT challenge this year is the introduction of new regulatory reporting forms for:

• 20,000 or so firms that are due to submit complaints returns to us;
• 200 or so non-bank, non-building society mortgage lenders;
• 18,000 or so mortgage, general insurance, and investment intermediaries; and
• 1,000 or so insurance companies.

We have been working on this programme for a number of years. We previously announced our intention to introduce mandatory electronic reporting for all firms (apart from credit unions); based on the activities they undertake; and with reporting dates aligned to their accounting reference dates.

Of course this isn't just an IT programme, although IT is obviously a key part of it. We have consulted publicly on the new forms, and are currently in discussion with the industry on new requirements for other sectors of the financial services market which will be implemented over the next few years. Our intention is to produce forms that require firms to submit the minimum data we need to discharge our responsibilities. This has, for example, allowed us to cut the size of the new insurance returns by about 50% compared to the old ones.

In my view the trickiest aspect of this programme is communication with all those firms that will have to use the system when it goes live on 1 st July. We are currently in the middle of an extensive programme involving direct communication to firms using speeches, our website, the trade press, trade associations, and other methods.

Whilst we are doing what we can to help firms comply with our requirements we have also introduced a 'stick' for those that don't. Late submitters will have to pay a £250 administrative surcharge. No doubt they will say this is unfair but our response is simple: why should those that do submit on time also pay us to chase those that don't? We will also send firms an email reminder some 30 days before the returns are due, so they will have plenty of notice.

The new returns will be submitted by a secure web based system. We have just completed a pilot involving 77 firms, and we are obviously extremely grateful to those that participated. The issues they identified are being addressed but we are extremely pleased that the system got an average overall score of 3.8 out of 5.

To quote a compliance adviser who spoke at an FSA conference recently "once the forms have been implemented the FSA will be able to conduct 'virtual visits' from their desks". This is a neat summary of our overall aim for this programme.

I have been led to believe that some of you might be expecting a major announcement about our use of XBRL today. I also understand that some of you may have heard a former colleague of mine speak about XBRL this morning. I am sorry to have to disappoint you in this regard. It is true that we are reviewing our longer-term technology options for this programme as it develops over the next few years. PWC have been working with us on this review. As yet we have not reached any conclusions but two things are obvious already:

• any system we introduce must meet the diverse needs and capabilities of its users; and
• XBRL is not the only option in town. In fact we have spoken to a variety of firms about the use of XBRL not all of whom are convinced it is the right reporting solution for us or for them.

You will obviously hear more from us on the technology solution we select at a later date.

Direct Reporting System

We aim to promote efficient, orderly and fair wholesale markets, and to ensure that UK markets are internationally sustainable. We are currently replacing our existing transaction reporting and analysis systems which are now 10 years old, and will introduce technology that will:

• make it easier for firms to report transaction data to us, as required by an EU Directive; and
• improve our capacity to identify transactions which may suggest incidences of market abuse or insider dealing.

The same technology platform will be used by product providers in the retail market to submit product sales data to us which will give us more information about which intermediaries are selling which products, than we have ever had before.

These are both good examples of how we will use IT to detect emerging issues in the market as a whole, and relating to individual firms. This will allow us to deploy our limited resources in a more efficient way, and help us meet our aims.

Of course by combining the data received in firms regulatory returns with data about the transactions they undertake, we will get even closer to the 'virtual visit' concept I mentioned earlier.

'Firms Online'

In the region of 12,000 firms are now registered to use Firms on-line, many more have been told that the system is available to them. This easy to use web- based facility allows firms to submit 8 of the most common regulatory transactions (e.g. Variations of Permission, and Waivers), between firms and ourselves, to us. There have been over 3,000 submissions via Firms on-line since it went live late last year.

The most frequently used forms are those for updates to firms' static data, such as their names and addresses, and those relating to appointed representative notifications.

The anecdotal feedback from users is that whilst the registration and set-up of the principal user in the firm takes a bit of time, once this is done the form and submission process work really well. This and other issues fed back to us by users will be addressed in future releases of the system.

On 1 st April this year we started systematic monitoring of 'customer satisfaction' once firms had been through one of 5 core processes. The questionnaire NOP uses on our behalf asks about the users' experience of the technology they use to submit their applications. We will doubtless get further helpful suggestions for system enhancements from this.

We are now planning the roll-out to the remaining firms, and expect to complete this by the end of June. Some of these have already discovered the link on our website and are using the system anyway. Ultimately we hope that well over 90% of the transactions within the scope of this system will be submitted to us using it.

www.fsa.gov.uk

In February this year we re-launched the FSA website. Prior to upgrading the website it could safely be described as rich in content but no-one ever called it user friendly. It was difficult to search for information or navigate effectively through the site.

The new site uses a design structure that works for both Consumers and Firms; it is has easy, intuitive and logical navigation to the content the user is looking for; and provides a fast, accurate and easy-to-use search capability.

Mortgagesolutions-online.com - an independent internet based trade magazine gave it an overall '9 out of ten' in March . And, we have just received accreditation of the site from the Plain Language Commission

Inevitably a minority of people say that they found the old system easier to use. We are currently working through their suggestions for further enhancements to the site.

Review of the FSA Register  

The FSA Register is a database of all authorised firms, approved products, and approved individuals regulated by the FSA. It includes information about the activities firms are entitled to perform, and the products they are entitled to trade.

We encourage consumers to check the status of firms they plan to deal with before doing so. We also require product providers in the mortgage, general insurance, and investment markets to ensure that the intermediaries they use to distribute their products are properly authorised by us. This helps achieve our overall aim for the retail market which is to help retail consumers achieve a fair deal.

The system was launched in 2001. As I indicated earlier our role has expanded significantly since then. The system now gets 6 million hits a month, compared with 3 million a year ago. As you can imagine this has put the system under pressure and we are aware that more users are getting 'system busy' messages than used to. We are now reviewing the functionality of the site and will introduce greater system capacity later in the year.

We are also reviewing the current disc based register data extract service we provide to product providers to help them meet their obligations; and will shortly write to users to explain the changes we plan to implement later in the year.

System Availability

 As we increasingly require firms to use the technology we provide to meet their regulatory requirements we must ensure that our systems are available to users at the time they need to use them. We plan to publish information and 'service standards' about system availability, and will report on our performance against these standards in our six monthly 'performance account.'

Conclusion

 I have briefly set out our plans for 2005/06. As you are all aware the success of these initiatives will depend on the design, build and implementation of the technology; as well as the abilities of the intended users. No doubt there will be problems along the way but I am confident that through greater use of improved technology, the FSA will become an easier place for firms, consumers and other stakeholders to do business with.