Integrated Regulatory Reporting update
December 2005
This update is principally aimed at firms (e.g. could include banks, building societies, insurers and investment firms - except personal investment firms) which:
carry on regulated activities in addition to:
- mortgage lending; or |
and | are not currently submitting the Retail Mediation Activities Return (RMAR) and the Mortgage Lending and Administration Return (MLAR) |
In this update, we explain that, from April 2007, these firms will be required to submit the 'non-financial' parts of the RMAR and MLAR under mandatory electronic reporting through our Firms Online system.
Firms that carry on one or more of the above activities and no other activity, plus personal investment firms (PIFs), are already submitting the relevant sections of the RMAR and/or MLAR electronically under Phase 1 which began in July 2005. These firms carry on reporting as they do now.
Insurance companies and certain friendly societies which submit the current annual financial return for insurers will need to be aware of our plans for applying mandatory electronic reporting. These are set out in part 4.
Part 1: Contents
In February 2005 we published a Discussion Paper (DP05/1)1 where we committed to provide the following information on Integrated Regulatory Reporting (IRR):
- when the remaining firms (not covered by phase 1) carrying out the activities covered by the RMAR or MLAR will be required to submit the relevant de-duplicated parts (the 'non-financial' sections) of the returns. This will lift the suspension made in October 2004 and give full effect to the original policy intention in PS04/92. Firms that could be affected include banks, building societies, insurers and investment firms (other than personal investment firms) (see Part 3).
- A date from when insurance companies and certain friendly societies will be subject to Mandatory Electronic Reporting (MER), enabling them at least 12 months' notice. (See Part 4).
- Our proposed technological approach for the future development of IRR. (See Part 5).
Part 2: Background
One of our principal aims is to improve our business capability and effectiveness. Integrated Regulatory Reporting (IRR) is one of the means by which we aim to meet this objective. We are progressively implementing regulatory reporting based on the regulated activities, so bringing reporting into line with our overall risk-based approach to regulation. Reporting will be aligned to a firm's financial year-end [its accounting reference date (ARD)]. This enables firms to use information they already generate for their own business purposes for regulatory purposes as well.
IRR was originally described in CP198 'Regulatory reporting – a new integrated approach'3 and in PS04/8 'Feedback on CP198 and made text'. We have developed it to meet a commitment we made in our 2003/04 Plan & Budget. This was to review the type and quality of regular standardised information we need from firms to be an effective risk-based regulator and to harmonise the inconsistent reporting formats we inherited from previous regulators.
A review of the reporting requirements for all regulated activities began in 2003. The focus of these reviews is to align reporting to our statutory objectives and our regulatory processes while identifying redundant data which we will no longer collect.
We committed to introducing Mandatory Electronic Reporting (MER) of regulatory data on a phased basis with appropriate rules being introduced as the revised reporting requirements are rolled out (only credit unions are exempt from MER). We believe that investing in technology to collect data from firms and analyse it brings benefits to both parties: it can be more efficient for firms, and enables us to use the data more effectively in monitoring firms' business. Analysis of the data will help us decide which firms and themes our supervisors should be focusing on.
The first phase in IRR implementation (IRR Phase 1) saw the Retail Mediation Activities Return (RMAR), Mortgage Lending and Administration Return (MLAR) and revised Complaints Return successfully go live on 1 July 2005. This followed a full review of and consultation on the reporting requirements in these mainly new returns during 2003/04. IRR Phase 1 applied the RMAR and MLAR to certain mortgage lenders and administrators and mortgage and general insurance brokers and personal investment firms (PIFs).
Following a review and consultation during 2003/2004 we have reduced the size and complexity of the returns submitted by insurance companies and certain friendly societies4. The extent of reduction varies depending on the type of insurance undertaken. Some firms reporting on their life business will have seen the amount of data required reduce by up to 60%. Reporting under this revised annual financial return will be implemented for firms with financial years ending on or after 31 December 2005 which are using existing submission methods.
We have started the review of reporting requirements for firms undertaking deposit taking, principal position taking and other investment firms affected by the Capital Requirements Directive (CRD). We published an IRR Discussion Paper (DP05/1) in February 2005. As detailed in DP05/1, the date of our Consultation Paper (CP) depends on the timing of the finalisation of the CRD and the linked Markets in Financial Instruments Directive (MiFID). We also said we would include in this CP a review of the reporting requirements for certain investment firms not affected by the CRD or MiFID. Our intention was to issue a single CP.
The final CRD was approved by the European Parliament in September 2005 and we scheduled our CP for February 2006. However, it has recently been announced that final adoption of MiFID, following consideration by the European Parliament, is unlikely before the second quarter of 20065. So we are considering whether a single consultation on the reporting implications of both the CRD and MiFID will continue to be more effective for firms and us. We are discussing a number of options with the relevant trade bodies and will confirm our approach through our Handbook development newsletters. Overall, the firms affected by this next phase of the review of reporting requirements will include banks, building societies, investment managers, operators of collective investment schemes, securities firms and recognised bodies6.
Part 3: IRR Phase 1 and Phase 2
IRR Phase 1
IRR Phase 1 introduced the MLAR and RMAR as new returns in Chapter 16 of the Supervision Manual, and updated the Complaints Return under the Dispute Resolution: the Complaints Sourcebook (DISP)7. Relevant firms have been submitting all three returns under Mandatory Electronic Reporting (MER) via our new Firms Online system since 1 July 2005.
The RMAR and MLAR are limited to personal investment firms and new scope mortgage and general insurance firms as described above.
IRR Phase 2 - Removal of Suspension
In October 2004 we suspended the requirement for the firms carrying on regulated activities – in addition to those covered by the new MLAR and RMAR returns – to submit the relevant sections to us. This suspension applied mainly to banks, building societies, insurers and investment firms (other than personal investment firms). The relevant sections are primarily the 'non-financial' reporting by these firms that is not covered by the returns they currently submit. We said at the time we would lift this suspension at a later date.
We have now lifted the suspension of the rules that were originally set out in PS04/9 in March 20048. A new instrument was approved by the FSA Board on 17 November (FSA 2005/63 Integrated Regulatory Reporting (Amendment) Instrument 2005). Any firm that carries out one or more of the following regulated activities in addition to other regulated activities will need to submit parts of the MLAR/RMAR return as appropriate:
- mortgage lending; or
- mortgage administration; or
- mortgage mediation; or
- insurance mediation; or,
- retail investment activities.
Firms, other than those already reporting under IRR Phase 1, subject to the reporting requirements of parts of the MLAR and RMAR will be required to submit this data under MER from 1 April 2007 using the web-based Firms Online system. Firms will need to start collecting the data from 1 January 2007.
Part 4: Insurers
Insurers: Revised Annual Published Return
As mentioned above, we have the reduced the size and complexity of the returns submitted by insurance companies and certain friendly societies9. The extent to which the reduction varies depends on the type of insurance undertaken. Some firms reporting on their life business will have seen the amount of data required reduce by up to 60%. Reporting under this revised annual financial return will be implemented for firms with financial years ending on or after 31 December 2005 using existing submission methods.
We are now able to announce that MER will not be applied to these firms before 1 July 2008 at the earliest. Discussions with the industry continue and we will confirm this date no later than July 2007, giving firms no less than 12 months' notice of a fixed start date.
Part 5: Our proposed technological approach for the future development of IRR
Our original intention was to build a single system to enable firms to report electronically, using eXtensible Business Reporting Language (XBRL). A formal review of this approach was undertaken involving discussions with a number of firms. The review concluded that this was not the most cost effective route at this time for either firms or for the FSA, so we will not at this stage develop reporting systems using XBRL.
Our approach will, therefore, look to use existing electronic means of reporting where this is feasible. The review also identified that the option of an appropriate system-to-system submission method was important to a number of firms. We will continue to review this requirement and involve the industry as the IRR programme develops.
XML
XML, which stands for eXtensible Markup Language is an open standard format for describing and encoding data. The format and structure of data can be defined in an XML schema and data expressed as an XML document that can then be exchanged and understood by systems using the correspondence schema. We concluded that currently XML is the most suitable technology for our business needs because:
- XML is an established technology in the UK's financial services industry and therefore firms could use XML for other reporting requirements;
- XML expertise is readily available; and
- XML is currently being used in other FSA systems, maintaining consistency with our desire to adopt a single reporting format.
The review team noted that XBRL activity is on the increase and it is possible that it may well become a major data exchange format in the future. So, while XML will be used in the development of regulatory reporting for the time being, we will continue to monitor the evolution and usage of XBRL.
Communications
Currently, the FSA is reviewing the IRR communications programme with firms and the industry with the aim of improving this in the New Year. In the meantime, the FSA is committed to work with trade bodies and the industry on the future development of the Integrated Regulatory Reporting Programme to ensure, as far as possible, changes are made in the most effective and efficient manner.
For more information on this update see IRR update - Questions and answers.
Footnotes
1 DP05/1: Integrated Regulatory Reporting (IRR) for: Deposit takers, principal position takers and other investment firms subject to the Capital Requirements Directive.
2 PS04/9: Reporting Requirements for mortgage, insurance and investment firms, and audit requirements for insurance intermediaries. Feedback on CP197 and made text.
3 CP198 included feedback on Discussion Paper 12 'The new regulatory reporting environment' published in May 2002, which informed our thinking on integrated reporting and the design of future reporting systems.
4 As set out in PS05/2 'Insurance regulatory reporting: changes to the publicly available annual return for insurers. Feedback on CP202 and CP04/1 (Chapter 2) and made text' published February 2004.
5 Please refer to the paper we published earlier this month – Planning for MiFID [PDF].
6 The term 'recognised bodies' includes recognised investment exchanges; recognised clearing houses; recognised overseas investment exchanges; recognised overseas clearing houses; service companies; and alternative trading system operators.
9 As set out in PS05/2: 'Insurance regulatory reporting: changes to the publicly available annual return for insurers. Feedback on CP202 and CP04/1 (Chapter 2) and made text' published February 2004.