Officials are now considering how to use its findings to overhaul regulatory reporting across the industry.
The FCA carried out trials with the Bank of England in late 2017 to see how it could use technology to make the reporting system “more accurate, efficient and consistent”.
FCA officials said testing proved it can turn a set of reporting rules within both the FCA and the PRA Handbooks into a language that machines could understand, thereby removing “the need for human interpretation”. The trial involved computers and software but not robots, the FCA said, when asked what it meant by references to 'machines'.
The idea was tested because FCA bosses wanted to explore the “potential for a fully automated process that firms could use to provide their regulatory returns”.
The FCA stated in a report: “We particularly wanted to find ways to make our reporting rules less reliant on human interpretation. We were also interested in how we could help firms implement changes to our rules more quickly.”
During trials, the regulator found machines could use the language to automatically execute the rules. Once the rules were translated, machines were able to fulfil the requirements by assessing the information required and then pulling this information directly from a firm’s databases.
The FCA suggested that, though the tests proved the possibility of machine readable and machine executable regulatory reporting using only a small sub-set of reporting rules, the approach “could be expanded to a broader range of regulatory reporting requirements.”
The authors of the report said: “This proof of concept has demonstrated that machine executable reporting is possible. If this is scaled across the industry, we need to consider the most effective governance mechanism to decide, and then manage, the implementation. We want to understand how governance can work in an environment where the participants are effectively co-creating the final solution.
“To take this work forward, the industry needs to be convinced that there is a compelling business case. This case would need to explain and quantify the benefits of machine executable reporting, as well as any risks and costs.”
Officials warned of potential difficulties in advancing the work.
The report stated: “Adopting a machine executable reporting regime could impact the legal and liability positions of regulators and regulated firms. Stating our reporting rules in a machine executable way would require us to publish rules in both their current form and in a machine executable format.”
However, it said there was good reason to pursue technological improvements because firms can find it difficult to meet obligations to send the FCA reports. Many have told the regulator it takes “significant effort to navigate and interpret the handbook”, so they instead rely on external services to understand what information is needed and when.
The FCA said that the findings of the work contained in today’s report are being made public so other participants can be involved.
It said: “As we do not believe that interpreting and meeting regulatory reporting requirements does or should deliver a competitive advantage to firms, we will continue to follow an open source approach to take this work forward.”
The FCA wants to hear views on today’s report entitled Call for Input: Using technology to achieve smarter regulatory reporting. Anyone wishing to do so can respond on an online form on the FCA website.
There will be a series of roundtables hosted by Tech Sprint participants to further discuss some of the relevant legal, technological and regulatory issues.
Email This email address is being protected from spambots. You need JavaScript enabled to view it. using ‘Machine Executable Roundtables’ in the subject heading if you want to attend.