This is a reprint of my September column in the Business Wire newsletter, but, given the importance of this project, I thought it bears repeating!
At a recent meeting of XBRL-US, the covers started to come off the long awaited “Call Report Modernisation Project”, a ground breaking XBRL project that goes live on 1 October. Otherwise known as the FFIEC (Federal Financial Institutions Examinations Council) call report project, this is the first project in the world to mandate the use of XBRL for regulatory reporting. The FFIEC is a co-ordinating body for the US bank regulatory agencies. It’s going to mean better information gets into the hands of the market, and regulators, much faster.
The FFIEC call report project upgrades the ageing quarterly reporting process required of the 8000+ US banks. The main benefits that the FFIEC are seeking are to improve the speed, efficiency and accuracy of their data collection, reducing the time that it takes to provide UBPRs (Uniform Bank Performance Reports) to bank supervisors working in the Fed System, the FDIC and the OCC. Many people in the markets are salivating at the thought that UBPR data will be published in around half the time previously achieved by these agencies.
By using XBRL taxonomies to define concepts, and an (admittedly semi-proprietary) formulae linkbase to define validation rules (or ‘edit checks’ in FFIEC speak), the project has pushed the task of providing accurate data back where it belongs – the supervised banks. Previously, error checks were carried out by staff within the regulators, with corrections and follow-up sought over the phone, slowing down the publication process by something like 60 days.
By publishing their validation rules, the FFIEC continues to lead the bank regulatory world in transparency. This philosophy, of publishing requirements and publishing the individual responses of regulated institutions, is something that other prudential regulators around the world tend to look on as revolutionary. Many regulated organizations, outside the United States, have long considered the publication of their performance on a range of risk measures as commercially sensitive.
But consider the virtuous cycle that the systematic release of this kind of information into the public domain creates. It provides incentives for staff inside the regulators to carry out great analysis, as they don’t want to be caught out when an industry pundit calls out a problem. Most importantly, it provides great incentives for executives of regulated institutions to pay attention to risk-based performance measures, since their peers will be comparing results.
It provides a simple, market-based mechanism for regulators to force management to look beyond growth and profitability, and examine the sustainability of their performance, based on asset quality, liquidity and the efficiency of their capital allocation. Of course, this philosophy of market-based transparency has been adopted in the Basel II capital accord reforms so, as they start to be implemented, much of this information will start to become available for the first time.
The provision of XBRL data from bank to regulator, and insurer to regulator, provides clear benefits to regulators. Many regulated institutions ask “What’s in it for me?” The answer, as the FFIEC is showing, must include the publication of each supervised institution’s reports, in XBRL format, making analysis a process focussed entirely on creating new insights into business performance and comparison, instead of the manual collection and collation of data itself.
Crossing the chasm
Over on the Gilbane Report Blog, Bill Zoellick’s July 26 post about the FFIEC project is, as usual, insightful. Bill argues that this kind of very focussed application of XBRL is exactly the way that technologies move beyond the early adopter phase.
It seems unarguable that, with some of the largest regulators in the world now using XBRL for these kinds of “closed form” reporting arrangements, other agencies, looking to improve the accuracy, timeliness and relevance of their reports will follow suit. And the evidence, from around the world, is very much in tune with this.
At CoreFiling, this is exactly the way we look on the technology. Closed reporting solutions using XBRL are now mainstream, with several referenceable implementations and good support from a range of vendors. No regulator, bank, insurer or large corporate that has to collect large quantities of complex performance data should contemplate implementing systems that do not support the standard.
Voluntary Filing Program
Since April, the poster child of XBRL-US has been the SEC’s Voluntary Filing Program, boosted this month with the announcement that N-Q and N-CSR filings by mutual funds will be accepted in the new format. While the tools and techniques to support filing of full financial statements have not yet reached the level of maturity needed to make this simple, the benefits, in terms of reputation, visibility and messaging are clear. Generally, initial take up should be from leaders that understand these benefits, realising that production of XBRL materials will take some effort the first time around.
In fact, supporting those organizations that want to grasp that first-mover advantage is one reason that we have set up a specialist consulting group in New York, to assist registrants that seek to file their accounts in XBRL.
More on this next month… Stay tuned!