Digital regulatory reporting

The purpose of DRR is to reduce the regulatory reporting burden on firms by making the process more efficient, while improving the quality of the 500,000 scheduled regulatory reports[1] the FCA alone receives every year.

Regulatory reporting is vital to the supervisory process, and a core mechanism for identifying risk, ensuring compliance and achieving our operational objectives[2].

However, regulatory reports are often expensive for firms to supply, estimated by consultancies to be 1.5 to 4 billion pounds a year in the UK, and the data received by the regulator is not always consistent, timely or of a sufficient standard to be useful. The FCA supervises more than 50,000 firms, so receiving high-quality data in an efficient manner is crucial to supervising and monitoring the market effectively.

Project Overview

Our project explores how we might automate and streamline various aspects of the regulatory reporting process by analysing the entire regulatory reporting lifecycle, from harm identification to implementation. This process has been called creating machine readable regulation (MRR) and machine executable regulation (MER).

In 2018 and 2019, the 2 UK regulators collaborated with 7 banks to complete 2 pilots (Pilot Phase 1 and 2 - see below). The banks were Barclays, Credit Suisse, HSBC, Lloyds, Nationwide, NatWest and Santander. Following this, we released our DRR Phase 2 Viability Assessment[3] in January 2020.

Since our work started, the necessity for innovation in regulatory reporting has been recognised domestically and internationally – there are now several DRR-related initiatives in place across the UK government as well as in the EU and global financial regulators[4].

Current Phase – DRR Phase 3

Following the release of the DRR Phase 2 Viability Assessment, the FCA and the Bank of England made a joint statement outlining their plans to develop their data and analytics capabilities[5].

This coincided with the launch of the FCA’s refreshed Data Strategy[6], as well as the publication of the Bank of England’s Discussion Paper (DP) on 'Transforming data collection from the UK financial sector[7]' to improve the timeliness and effectiveness of data collection from firms across the financial system – that launched a broad review of the Bank of England’s data collection process..

The FCA is embedding DRR as part of the FCA’s Data Strategy[6], which aims to harness data and advanced analytics to support our Mission[8], and ultimately transform how we carry out financial regulation in the UK.

Similarly, the Bank of England’s Data Collection Review draws on many of the ideas and learnings from DRR.

At the FCA, we have moved onto DRR Phase 3 which establishes the foundational requirements necessary to eventually create MRR and MER, as well as delivering immediate changes to the data that is requested and how it is used in new and existing areas of regulation.

The current phase of our work consists of 2 main workstreams:

1. Delivering data value

• Working with diverse areas of new regulation to design and test solutions to provide supervisors with improved core data that they can trust and use.
• Creating the methods to scale these solutions and eventually improve the utility of historic regulatory reports.

2. Improving regulatory interpretation, implementation and execution

• Establishing the foundational requirements to deliver value from technology, particularly Data Standardisation. This represents the need for all stakeholders to align on definitions, interpretation and ongoing implementation of rules and data definitions in the same way, along with the governance framework needed to implement this.
• Testing our approach to scaling technology-driven reporting solutions across the financial services sector.

To progress these workstreams, the FCA is collaborating closely with relevant stakeholders in the industry, including firms and Regtech companies, to co-design and test solutions to reduce burden.

The FCA will continue to work closely with the Bank of England, on areas where our strategies overlap or regulatory goals are similar.

We welcome feedback, requests for further information and expressions of interest in becoming involved. Please email [email protected].

Previous Phases – DRR Phase 1 and 2

DRR emerged from an FCA TechSprint[9] (hackathon) in November 2016 that explored the idea of digitising reporting instructions[10], with reference to an agreed data model. This idea was further explored in a November 2017 TechSprint on Model Driven Machine Executable Regulatory Reporting[11] – run jointly by the Bank and FCA.

DRR Pilot Phase 1 (June to December 2018)

The focus of this phase was to explore how the regulatory reporting process could be automated by writing regulation in a Machine Executable Regulation (MER) format and to develop options for the Target Operating Model (TOM) required to support digital regulatory reporting.

Read the report on Phase 1 of the pilot to learn more about the project (PDF)[13]

DRR Pilot Phase 2 (February to October 2019)

The focus of this phase was to determine how Domain Specific Languages (DSLs) could be leveraged to generate MER and to assess the viability of DRR by modelling the cost-benefit business case for multiple implementation scenarios.

Read our viability assessment on digital regulatory reporting (PDF)[3]