Mind The Gap – XBRL isn’t just an output format!

There can&rsquo;t be many firms who now don&rsquo;t know what XBRL is but as a reminder, it stands for eXtensible Business Reporting Language. The reason it matters is that the overall banking regulator for Europe, the EBA, has mandated use as the Implementation Technical Standard for submission of data for the Capital Requirements Directive (CRD IV). It&rsquo;s important therefore that regulated firms have a good and increasing understanding of what this will mean for the way they prepare their regulatory returns to comply with CRD IV &ndash; especially as it relates to the CoReP and FinReP data sets, which must be submitted in XBRL. To comply with the requirement to submit CoReP and FinReP, Firms are going through the actions now to ensure that they are ready to submit to their appropriate national authority in the April/May 2014 timeframe. France of course has been using XBRL for a number of years but for many banks in Europe this is generally the start of XBRL submissions. For French banks though, it is undoubtedly a far more comprehensive use of the standard on a pan-European basis. After the initial reports, additional reporting requirements are phased in and by the end of 2014, all sections of CoReP and FinReP will be established in a quarterly submission cycle. The growth of XBRL uses However, if we look forward, the gap referred to in the title that exists is that a significant number of firms are still looking at XBRL in a relatively narrow (and only regulatory manner). The scope and pace of XBRL adoption on a global basis is not as widely appreciated. For those firms who do business internationally, it is the sheer scale of the growth and extent of XBRL use that deserves to be better understood. It is often said that XBRL sort of changes nothing &ndash; the issue is that going forward, it will impact almost everything. There are four main area&rsquo;s to be aware of that firms need to encompass into their existing XBRL strategies. They are : - the growth of XBRL uses, the number of countries adopting it and how governments are looking at it more widely, - gaps in co-ordination across the enterprise, - gaps in skills for this emerging world - gaps in completeness of strategy for the next five years In terms of the growth of XBRL uses, we are all aware of the convergence of Basel III and CRD IV but in differing countries, different uses are well established. Some of the older uses are in stock exchanges, registrars, mutual funds and corporate taxation. Insurance with Solvency II is also now well advanced and on course to implement XBRL based systems. The example of Australia&rsquo;s Standardised Business Reporting Increasingly we see that an XBRL strategy based on any one given regulator will not be effective in the wider sense. Already in the UK we see separate stove pipes in firms for Corporate Taxation (HMRC), Bank Reporting (PRA) and Registrars (Companies House). When we add reporting for corporate actions, pensions and VAT reporting over the next few years, we can see that multiple vendors for multiple reporting needs will not work. Already Governments are talking about country level taxonomies. They are seeing the benefits which accrue when data is collected accurately, especially when the respondent is responsible for data accuracy as in the case of XBRL-based submissions. This is not a simple task but it is one that has a great &lsquo;path-finder&rsquo; in the example of Australia&rsquo;s Standardised Business Reporting (SBR). By defining XBRL based taxonomies and the data requirements of the Government, SBR-enabled software reads the financial data in firms&rsquo; relevant systems, pre-fills the forms with the required information, validates the data and then delivers the forms to one of the ten relevant government agencies through a secure online gateway. The benefits to the governmental agency and the respondents through not having to re-key data are significant. We expect more countries to adopt this system for multiple agencies. The need for Master Data Management What does this type of approach mean for firms? The most obvious thing is the growing importance of managing the actual taxonomies of various agencies that a firm will have to use globally. In practice this will mean having the skills and technologies to allow for taxonomy ingestion. Once downloaded, they will need to be rendered to a human readable format to be interpreted. There will then follow a process of mapping these data elements to internal systems. This is where we see the greatest change. The need for Master Data Management (MDM) to manage this sourcing of data will become operationally vital. MDM will augment the taxonomy management process by allowing the IT function to establish where data elements are drawn from in an automated framework. Examples of this mix of technologies exist today. The same tools will also allow the collection of validations for the same data element, but from different regulators to be gathered into one application for ease of management. This will be able to be applied as the relevant data is extracted from its nominated &lsquo;single source of truth&rsquo;. In this way, wherever such an element is used in a regulatory or reporting situation from a regulatory data staging area, it&rsquo;s validation is guaranteed. Other implications for firms is that Data Quality is vital and will have to be managed on a much more pro-active manner. Multiple uses of what ostensibly is meant to be the same data will have to be consistent. To deliver on this, processes around data creation will need to be defined, implemented, aligned with regulatory control points and monitored. This will no doubt (and should) drive the adoption of Governance Risk Management and Compliance (GRC) applications into firms Regulatory Compliance strategies. Many firms currently maintain such controls on spread sheets. GRC applications will help define, maintain and augment these controls and processes. In terms of co-ordination across the enterprise, we see early signs that some firms are starting to understand the importance of Data Ownership and Data Stewardship and the rise or at least establishment of a Chief Data Officer role. Why does this matter? In any XBRL-based submission, filing cannot be done until all data validates in line with external rules called &lsquo;validations&rsquo;. But what happens if the data required is not something that has been collected before? What happens if interpretation has to be decided upon? In such cases, it is vital that the business side of the firm makes that call. On the IT side, it is vital that they are responsible for XBRL filings in the widest sense. For instance, does the firms database store raw-XML-based files (it will need to), does the ETL [1] tool used to populate the XBRL staging area support regulatory validations, who is responsible for taxonomy management and archiving and so on. Simply constructing stove pipe reports for a single regulator will mean increasing costs and errors in preparation. Skills will be required In terms of the gaps resulting from the increasing use of XBRL, perhaps the most urgent is the small numbers of skilled people in this area. The skills that will be required going forward are the ability to comfortably work with XBRL Engine applications. Most applications supporting Regulatory Reporting today have tended to bind users to their proprietary &lsquo;templates&rsquo;. Many of these firms are finding that early filings sent to regulatory agencies are being rejected as being invalid. It is one thing to create a form &ndash; it is quite another for that form to create valid XBRL for multiple firms using the same form! Other skills which need to grown or acquired are the Data Architecture skills to appreciate, explain and implement systems whose data has to be repeatedly identical when used with multiple global regulatory bodies. This is where the concepts of &lsquo;Factory Reporting&rsquo; discussed in another paper at this event play so well in designing multi &ndash; disciplinary solutions that significantly reduce the effort and costs of compliance. Over the next five years&hellip; Finally, in terms of longer term strategies for XBRL over say the next five years, we still see many firms, who on the evidence of over a hundred visits to firms over the last three years, are still looking at XBRL as something that can be applied and dealt with at the end of the data gathering process. This is not only wrong, but will lead to high levels of validation errors in the preparation of final submissions as data gathered fails to correlate with the external data checks and balances that are contained in the downloaded taxonomy. Regulated firms across Europe will soon recognise that XBRL is permanent, pervasive but ultimately a far more productive way of regulatory reporting. Moreover, going forward, XBRL will be a quarterly activity, increasingly not just for one regulator and is never going away. The good news is that it will, as it has elsewhere in the world, quickly build to become a better, faster and cheaper way of regulatory reporting 1 Extract, Transform and Load.

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Mind The Gap – XBRL isn’t just an output format!

There are four main area’s to be aware of that firms need to encompass into their existing XBRL strategies : the growth of XBRL uses; gaps in co-ordination across the enterprise; gaps in skills for this emerging world; and gaps in completeness of strategy for the next five years.

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