Financial intermediaries may be able to challenge regulatory action taken against them if it is based on data electronically-submitted to the Financial Services Authority (FSA.
The FSA may not be able to prove whether information submitted through electronic reporting is correct or when it was sent, and could therefore lead to legal challenges, according to an IT expert.
Speaking at the IFAonline Technology Day, Richard Campbell, director of business development at Milvus Software - a firm which is also a member of the IT trade body Intellect UK – says despite initial consultation with software and technology firms, the FSA has created a web browser Mandatory Electronic Reporting system which does not allow companies to time-stamp their submissions or prove regulatory information was successfully submitted.
Under new regulations being introduced on July 1st, all IFA firms and mortgage intermediaries will be required to submit a Retail Mediation Activities Return (RMAR) and Mortgage Lending and Administration Return for products recommended to clients, depending on when their own reporting requirements fall. But they will have to submit that data using an online web-based browser system created by the FSA.
A group of financial services experts from technology trade body Intellect UK had been in discussions with the FSA last year about the creation of a ‘system-to-system’ process which allowed adviser firms to send regulatory data from their own internal IT systems straight through to the FSA’s computers, as this would be the most efficient way of presenting data.
But so far the FSA has only created a web browser system, which requiures the user to input information by hand and does not allow a firm to check data was received.
“Although much of the information [companies have to submit] is already in an electronic format, they will have to use a web browser and print this [report] out. There is no explicit audit trail and verification,” says Campbell.
“I will be amazed as to how the FSA will be able to prove their submissions in court, as they will not be able to prove whatever the IFA sent is what they present in court. I believe there will be huge legal challenges at some point,” he adds.
According to Campbell, the FSA had met with information technology experts in April 2004 with the intention of creating two types of data processing systems under which adviser groups would submit regulatory data. The regulator's favoured platform would see data submitted using a type of coding known as XBRL enabling information to be automatically transmitted to the FSA, while the other system, about to go live, was an online system where data has to be keyed in by the intermediary on a electonic form, instead of filing documents by hand.
But several key members of the FSA’s development team have left the government body and there have been no discussions with the FSA since, says Campbell, so there is still no indication as to when the XBRL link will be available.
“The suggestion was data would be submitted either through a web browser or system-to-system and that was the thinking behind the strategy,” says Campbell.
“The proposed solution would be time-stamped to prove when information was sent and that the firm was therefore fully compliant with FSA requirements. The direction of the FSA then was to move from the XBRL approach towards a web browser approach. But the FSA has now cut off all communications, we think because they are embarrassed about the lack of vision they have,” continued Campbell.
Robin Gordon-Walker, spokesman for the FSA, says creating a ‘system-to-system’ reporting proposition is in the “medium to long-term plan” as that would be the most efficient for both the FSA and firms to use.
That process has now been delayed as the City watchdog was unwilling to launch an IT system which was not found to be fully functional or could lead to records “going missing”, so the web browser is available to submit RMARs.
In the meantime, says Gordon-Walker, whether or not time stamps could be verified is “not an issue that has been raised” as adviser firms will be able to keep a record of information submitted by printing it out or storing it as a PDF.According to Campbell, the purpose of the FSA’s integrated regulatory reporting is in part to rationalise the regulatory taxonomies and the data firms have to produce.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Julie Henderson on 020 7968 4571 or email [email protected].IFAonline
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