As previous readers know, I was, with others, heavily involved with the FCA TechSprint last November – the one that proved the concept of what’s now termed Digital Regulatory Reporting (DRR). Originally the acronym was MDMERR – will leave you to look it up on the FCA website!
This was followed by a Call for Input involving a series of Roundtables, three of which Grant Thornton co-hosted, and DRR has become a prominent part of the Government’s Fintech Strategy. These pilots (see link) take the work to the next stage. There is a long way to go, with Brexit both a stimulant and a distraction, but so far so good…
I’ve written and spoken before about the longer-term benefits and challenges of DRR, and it's increasingly evident that getting the governance right is key, not only to the success of this initiative but to some of the bigger conundrums of regulation in the 21st century.
To date, the UK regulators involved – both the FCA and the PRA/Bank of England – have managed to push this initiative forward extremely skilfully, and with limited risk; formal governance has been minimal. Everyone, however, is aware this road is going to run out at some point.
Several of the questions in the Call for Input were focused on the intertwined issues of governance and funding, and the pressure of events over the next year or so is likely to force these to the forefront.
Assuming the pilots complete by the end of the year and are successful, they will inform the FCA and Bank budget considerations for 2019/20 and beyond. By then also, the narrative around Brexit should, one way or another, be less unclear. The question then will be how much certainty can the regulators give to the industry about the direction and speed of travel for DRR. Specifically:
- What direct investment will the regulators themselves make?
- When they re-write their Handbooks (post Brexit) will they remove unintended ambiguity and write them in a way that is machine-readable?
- What decisions will they take about their own reporting infrastructure, notably the replacement of GABRIEL?
- And can they offer any "switch" dates, where a chunk of reporting becomes machine executable, for the industry to aim towards?
Against this background, whatever decisions are taken, the governance around Regtech will need to evolve. Regulated firms and vendors (both large and small), overseas regulators, academics, legal and consultancy firms, will all have legitimate parts to play in the development of DRR. But they will become involved at different stages and in different ways, and their respective roles will alter over time.
This is therefore the first of a series of articles over the next year, looking to explore DRR governance and how it might be built in a sustainable way that reflects the nature of challenge.
To start with, here are four tests DRR governance will probably need ultimately to pass. Each is described as a balance between competing values and forces:
- Membership is open and inclusive, but decision making is quick and flexible
- Regulators’ involvement is transparent and formal, but development is primarily driven by the private sector
- Resources are sufficient to fund DRR development, but those who pay more have no greater influence than those who pay less
- The culture is collaborative, but continual innovation and competition are guiding principles
It goes without saying none if this will be easy, much of it is counter-intuitive. The next few blogs in this series will therefore explore each of these tests in turn, kicking the tyres on what they mean and looking at ways in which they might be met.
We are working with the Bank of England on 6 month pilots to build upon the Proof of Concept developed at our November TechSprint on digital regulatory reporting. The pilots will evaluate the feasibility of scaling the work from the TechSprint considering 2 use cases.