Techforward Award: Financial Conduct Authority

Data is the lifeblood of regulation. It allows regulators to deliver effective supervision, while enabling them to successfully monitor the financial system and detect vulnerabilities. For regulators to carry out their task successfully, however, financial firms must adhere to certain rules and regulations, which – until a decade ago – went on seamlessly. 

But, following the financial crisis, the financial world appears to have had an aneurysm. The scope and volume of regulation issued globally has never been greater as regulators look to hold the banking system to account for its past sins. As a result, firms and regulators are struggling to keep up with reporting requirements. 

One UK regulator, the Financial Conduct Authority (FCA), has looked to reduce the burden placed on firms. The FCA has been one of the first regulators to grab technology by the horns and use it for its processes to make regulatory reporting more accurate, efficient and consistent. Every year the FCA receives over 500,000 scheduled regulatory reports from firms, as well as additional ad hoc reports. For this reason, it has earned Central Banking’s FinTech & RegTech Techforward Award.

In November 2017, the regulator launched a two week ‘TechSprint’. By exploring ways of making reporting rules less reliant on human interpretation, the initiative looked to develop a set of reporting rules that could be translated into a machine‑readable language. 

The hope was machines would then be able to use this language to automatically execute regulation. The exercise was deemed a success; machines were able to pull relevant data directly from a financial firm’s database and, while only a small subset of rules was tested, the approach could be expanded to a larger range of requirements. 

This approach has not been successfully implemented by any other regulator, and the benefits of such an approach to regulation could be revolutionary. The accuracy of data submissions could improve, regulatory change could happen more quickly, and regulatory costs could be reduced. The latter, the FCA hopes, will also help lower barriers to firms currently unable to compete in the market. 

Since the launch of the proof of concept, the FCA has embarked on a number of six‑month pilots on wholesale regulatory reporting and retail reporting, to discover whether the technology developed during the TechSprint can be scaled up.

The FCA has not stopped there. One of the only regulators with a competitive mandate, it has asked the market how it can improve its approach. In February 2018, the regulator published the technical steps it took to develop the reporting language and asked firms to comment on how it could be made more effective, and what other avenues technology could be used in to streamline reporting.

Read the full Central Banking FinTech RegTech Global Awards 2018 Winners In Focus report