Just because there are market inefficiencies in the US that require the introduction of XBRL to be solved, doesn’t mean that Europe should follow suit, contended Michael Kempe, chief development officer for Capita Registrars, which looks after issuers in the UK and Irish markets. The European market is much less paper driven than the US market and a degree of automation has already been achieved through the use of ISO standards. XBRL is therefore not appropriate in the European context, argued Kempe.
Kempe told delegates to CorpActions 2010 that a lot of time, money and effort has gone into making sure that ISO standards are being used: “Why then spend on introducing XBRL?”
The cost/benefit argument for introducing XBRL, as elaborated by Max Mansur, global market manager for Asset Servicing at Swift, and David Hands, director of asset services product management at DTCC Solutions, is not the same for every market, said Kempe. “It is not one size fits all. In the UK we already have STP because the messages are automated directly from the issuer agent. It is unreasonable to suggest that because one market is broken, all the others are.”
Representing the intermediary community, Mark Jones, issuer services product head for EMEA at Citi, indicated that a lot of work is done by intermediaries in the European market to facilitate the automation of corporate actions. He cited credit events as one of the few areas that remained largely paper-based and therefore more manual, but noted that it was “not a massive concern”. The appetite for XBRL is likely to be small, given this work that has already been done towards automating the space, he added.
“We should build on things that are working and not force processes on markets that don’t need them. I would hate to see XBRL delaying ISO progress,” he warned.
Jones indicated that he felt the structure of the corporate actions process in Europe means that issuer agents do the work for issuers without needing to communicate with them. “Most of the events are diarised and therefore automatic processes are in place. After all, this is what issuers pay us for,” he said. The only time that communication is required is when out of the ordinary events are involved and at this point there are some challenges in extracting data from issuers, he added.
Unsurprisingly, Kempe felt that this and the comments made by custodians earlier in the conference were a rather unfair assessment of the issuer community in the UK and Irish markets. “We are engaged in the corporate actions process and we have been involved in agreeing the ISO standards and are happy to use them,” he said. He added that he was “appalled” that issuers were being blamed for the problems in the corporate actions market. “I’m bored of hearing that issuers are to blame – it is too simplistic to say that it is an issuer problem, it is a market harmonisation problem.”
Kempe talked about the need for a more joined up global approach and noted that a lot of the work being done at a European level by groups such as the Corporate Actions Joint Working Group (CAJWG), was a mistake because of the very fact that it is focused on Europe rather than a global context. Obviously, automation is of benefit to these markets but it also leads to a lack of harmonisation at a global level.
Citi’s Jones suggested that in order to incentivise issuers to get more involved and become more standardised that intermediaries should charge them more for corporate actions events that need data scrubbing. Of course, Kempe disagreed and contended that issuers do not need to be incentivised in such a manner, but he agreed that all parties need to be engaged in the debate.
Mansur’s response to all of this was that the XBRL and ISO work was not about forcing XBRL on markets but rather on ensuring that they are compatible for the future. He pointed to non-English speaking markets as prime beneficiaries of this work by taking translation errors out of the mix.
It seems that XBRL has not got widespread backing in the European markets as yet. However, it should be interesting to see the impact that potential legislation at the European level to mandate XBRL for financial reporting will have on this equation. Last year, the Committee of European Securities Regulators’ (CESR) indicated it is considering the move and that might act as a game changer for XBRL in the European market.
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