The UK’s Financial Conduct Authority (FCA) and the Bank of England last week revealed bold new plans to drastically boost their data and analytics capability, using advanced analytics and automation techniques to deepen their understanding of how markets function and to efficiently predict, monitor and respond to firm and market issues.
Alongside investment in new technology and increased use of external data, the FCA plans to pursue a broader transformation, investing in skills and new ways of working to enable it to better understand and use data and innovative technology. The approach includes data science units being established in selected parts of the organisation and exploitation of new opportunities arising from the FCA’s migration to cloud-based IT infrastructure.
“Advances in technology are changing the nature of the firms and markets we regulate,” says Christopher Woolard, Executive Director of Strategy and Competition at the FCA. “Our Data Strategy provides a clear path for us to ensure we have the necessary skills and processes in place to remain at the forefront of this change. In keeping with our Mission, a data-driven approach to regulation allows us to anticipate harms before they crystallise, better understand the effect on consumers of changing business models and to regulate an increasing number of firms efficiently and effectively.”
In the same week, the Bank of England published a Discussion Paper on ‘Transforming data collection from the UK financial sector’ to improve the timeliness and effectiveness of data collection from firms across the financial system. The paper comes in response to 2019’s Future of Finance Report, chaired by former advisor to Mark Carney Huw van Steenis, which recommended that the Bank develop a new digital data strategy.
Comments Sam Woods, Deputy Governor for Prudential Regulation and CEO of the Prudential Regulation Authority, “Having the right data is vital to our role as a regulator, and to the ability of banks and insurers to manage themselves effectively. Recent developments in technology should allow us to improve how we collect data from firms, making reporting more timely, more effective and less burdensome for firms. This is potentially a major change so we want to work closely with firms to make sure we get it right over the next decade – our Discussion Paper starts that process by setting out the strategic issues in order to stimulate a debate about the way forward.”
The FCA, the Bank of England and seven regulated firms (including Barclays, Credit Suisse, Lloyds Bank, HSBC, Nationwide, NatWest, and Santander) also jointly released a Phase 2 Viability Assessment report on the latest Digital Regulatory Reporting (DRR) pilot. DRR will potentially allow firms to automatically supply data requested by the regulators, thereby reducing the cost of collection, improving data quality and reducing the burden of data supply on the industry. The purpose of the paper was to gather information and conduct analysis to help decision makers determine whether “continued investment in DRR is warranted” and to identify any gaps that need closing before any potential implementation.
Following the report, the two regulators have committed to exploring joint work on common data standards, as well as commissioning joint reviews on the legal implications of writing reporting instructions as code, and on the possible technical solutions that could be implemented as part of DRR. Notably, the report found that there were no current third-party solutions that would meet the optimal demands of DRR, suggesting that new development may be required – although it noted that both the Financial products Markup Language (FpML) standard (a widely-adopted open source data standard commonly used for derivatives reporting) and the emerging Common Domain Model (CDM) came close to meeting requirements for more complex financial products.