PA Consulting’s Digital Regulatory Reporting: A Review of Phase 1 and 2 of the Digital Regulatory Reporting Initiative

The FCA and Bank of England commissioned PA Consulting to conduct an independent review into the Digital Regulatory Reporting (DRR) programme, critically evaluating key outputs and recommending next steps for future work.

The report focused on three key areas of the programme to date: 

  1. potential operating model scenarios, to define the capabilities which are required to increase automation in the regulatory data collection process
  2. technical standards and approaches used in the DRR pilot to generate machine readable and machine executable reporting rules
  3. possible approaches for implementation to quickly deliver value to industry and the regulators at the lowest achievable cost

The report made a series of recommendations, which are summarised below. For each recommendation, we present the actions we, as regulators, plan to take in response.

Operating Model 

PA Consulting analysed operating model options against key functions and made the following recommendations: 
•    The function of generating regulatory reports should remain decentralised so that firms can implement their own solutions based on a set of open standards.
•    Two approaches to issuing and managing standards should be considered:
i.    Setting up a new, independent platform to enable industry alignment and cooperation; and 
ii.   Keeping standards issuance and management in-house at the regulator, which is likely to be quicker to implement in the short term.

Our response  

FCA and the Bank are exploring the development of a common set of principles and data standards used to underpin regulatory reporting data collections for both institutions. These activities are likely to include:
-    Developing a common set of requirements for common data standards
-    Outlining a clear and aligned role for the Bank and FCA in the development and adoption of common data standards
-    Setting up a joint data standards working group with industry (a commitment we made publically in January 2020)
FCA and the Bank are also engaging internationally, to explore related initiatives around the world and to align with emerging consensus around the appropriate governance framework for developing and maintaining data standards across different domains. 

Technical Approach

The report recommended next steps for further development of machine executable reporting rules and automated reporting: 

  • The DRR team should continue to monitor advances in tools and technologies for writing regulatory instructions before committing to a solution for generating Machine Executable Rules.
  • Phase 3 of DRR should focus on the Data workstream and developing a Data Dictionary which precisely defines terms in the regulatory rulebook. This will improve the efficiency, accuracy and interoperability of the current reporting process, as well as providing the foundations for automating the reporting process in the future.

Our response 

Both regulators continue to have a strong interest in how technology and automation can improve the interpretation/implementation of reporting instructions and the delivery of data to the Bank and FCA. This includes exploring improvements to the FCA Handbook and PRA Rulebook in addition to reporting rules.

Both regulators have already launched initiatives in this area. 

  1. With a new data strategy in place, the FCA plans to continue live tests of improvements in new regulatory reports that are intended to create and embed best practice while delivering foundational aspects for better data collection
  2. The Bank is exploring, with industry, the development of new ways of writing and publishing reporting instructions as part of its work looking at “Modernising Reporting Instructions” – a key strand of its on-going review of data collection.  
  3. The Bank’s Digital First Policy Making project is exploring options to improve both policy writing and reporting instructions over the next few years in order to inform future changes to the PRA’s Rulebook. The work aims to ensure the Bank meets a commitment, published in response to the Future of Finance report, to make the PRA Rulebook machine-readable.

Implementation Approach

Finally, the report made recommendations on the different options for implementing tools and techniques to improve the efficiency of reporting, proposing that the regulators:

  • Define a clear and harmonised DRR vision supported by secure sponsorship from the most senior levels of the FCA and the Bank.
  • Adopt an agile development approach to creating a working DRR test case. 
  • Develop a stronger case for DRR which goes beyond potential industry cost savings and puts forwards broader benefits for the financial sector

Our response 

During the first half of 2020 the Bank and FCA have been taking forward work on data collection transformation activities separately. This separation was necessary for the ideas of DRR to move from innovation to implementation. It reflects differences in institutional mandates and internal priorities, as opposed to broad differences in the goals or methods of improving data collection.

Throughout 2020, the Bank is undertaking its data collection review. The review is an institutional strategic goal announced in response to the Future of Finance report. It aims to develop, with industry, a transformation plan for data collection. In scope of the review are many of the ideas and solutions developed during DRR.

The FCA’s RegTech team have participated in some of the stakeholder engagement events including roundtables and key bilaterals and continue to work closely with by the Bank’s Data Collection Transformation team, which was tasked to deliver and plan the review. 

With sponsorship at a senior-level, the FCA’s DRR work has focussed more internally and directly progressed the recommendations from the Viability assessment and the Independent review. Namely these focus on the live tests and delivering the organisational changes required to scale the transformation required. 

Nonetheless, the Bank’s Data Collection Transformation team and the FCA’s RegTech team have been actively sharing information on our respective activities. Further we are actively exploring ways to align our activities on data collection transformation in the future, where such alignment is in the interests of the Bank, FCA and industry. This includes considering a joint vision for the future of data collection and the possible delivery of joint use cases where there is significant overlap in the data received by both institutions. 

PA Consulting: Digital Regulatory Reporting: A Review of Phase 1 and 2 of the Digital Regulatory Reporting Initiative