Financial Reporting - Insubstantial reports

As part of the new regulatory regime, general insurance brokers are required to report periodically to the Financial Services Authority on a range of matters, such as the adequacy of capital and complaints data.

Mandatory Electronic Reporting (MER) will start on 1 April 2005 for general insurance, mortgage intermediaries, independent financial advisers and other retail investment firms. The new Integrated Regulatory Return will be based on the type of business firms undertake and will align reporting periods with firms' financial years - enabling them to use the information they already generate for their own business purposes for regulatory purposes too.

Firms regulated for the first time under the mortgage and general insurance regime, and personal investment firms, will have to collect the data for the Mortgage Lenders and Administrators' Return (MLAR) and/or the Retail Mediation Activities Return (RMAR). Firms must collect this data from April 2005. The first submissions will be due from July 2005 onwards, depending on the firm's accounting reference date.

MER requires regulated firms to submit integrated returns to the FSA electronically. Firms also have to collect complaints data in the new reporting format from 1 April 2005 and are expected to start to submit complaints data to the FSA electronically from 1 July 2005. This does not mean the data for the period 1 April to 30 June 2005 should not be collected; it must be included in a firm's first return submitted after 1 July 2005.

All firms will be required to check that the standing data (for example, the firm name and registered office) held on them by the FSA is correct annually from 1 July 2005, and notify the regulator of any changes as appropriate.

High-street difficulties

FSA Policy Statement 04/9 outlines new regulations for the collection and reporting of sales, financial and compliance data for general insurance products, mortgages and other financial products.

Small firms are excluded from the requirement to report mid-year financial information for the first year; thereafter, they will have to report on a six-monthly basis. Small firms are defined as those whose annual income from retail mediation activities in the previous financial year was £60,000 or less.

The FSA is considering how else it can help smaller firms reach a position where they can complete their returns without professional guidance. FSA director of high-street firms Sarah Wilson says: "We need to have a clear picture of what is happening in the marketplace to help us to spot potential problems early on and determine whether action needs to be taken. That is why we are asking firms to provide us with information on a regular basis. This will help us to be cost-effective - by allowing us to be present on the ground where it matters most.

"For smaller firms from these sectors, we are conscious that getting to grips with our requirements is a big task. So we have also published a guide to help such firms access the FSA Handbook and find the rules that are relevant to their firm."

XBRL

Policy Statement 04/9 also includes the requirement to submit a regular financial audit using either a web-browser-based form from July 2005, or, in future, directly using eXtensible Business Reporting Language (XBRL)-based transfer, which will be introduced at a later date.

XBRL is an electronic format for simplifying the flow of financial statements, regulatory data and other financial information between software programs.

The principal aims in implementing electronic reporting are to simplify and streamline the current paper-based processes while reducing reporting costs to firms.

The FSA has established a Software Suppliers' Advisory Panel to support the introduction of electronic reporting for regulated firms. It represents the community of software suppliers that provide relevant systems to firms.

Misys has been on the Software Suppliers' Advisory Panel since it was established at the end of 2002. Mark Ryder, commercial director of Misys General Insurance, says that, while the FSA remains keen to exploit the potential of XBRL, it is not ignoring the alternatives: "The main objective is to find a pragmatic and workable solution for the industry. The FSA recognises that participation with key industry players has been, and will continue to be, fundamental.

"Misys seeks to represent the interests of the typical high-street broker. It is unlikely that the majority of these brokers will want or need to make use of XBRL utilities to deliver their mandatory electronic returns to the FSA. The key reason for this is that the data required to complete the returns is likely to come from a variety of sources and systems, such as their back-office system, human resources system, training records and so on. In many cases, one or more of these will probably be non-computerised."

Internet submissions

According to Ryder, the current view is that many brokers will favour using the FSA's online reporting facilities, especially since it has elected to make reporting for high-street firms as simple as possible, bearing in mind that only a small amount of data will be required from the various sources.

Jon Morrell, strategy and strategic relations director of insurE-com, says: "InsurE-com's system uses the XBRL standards adopted by the FSA. The data fields themselves already exist within our core systems and we are currently going through a process of building the required reports and automating the process for our clients. This will be ready well in advance of April 2005 when firms are required to begin collecting data."

Morrell says he is not anticipating any difficulties regarding the financial reporting process. However, he believes technology will assist the process and reduce the burden of regulatory reporting for brokers.