Will all XBRL break loose?

It may be less complicated than feared

The Financial Services Authority (FSA) has announced that it will start to collect regulatory data electronically next year, using the XBRL reporting language. As few insurers, brokers and their software suppliers have used XBRL, this has caused consternation within the industry. However, Whitespace believes that the changes may not be as challenging as some sources suggest.

  Background

What is XBRL?
XBRL (eXtensible Business Reporting Language) is an XML-based language which supports the automated exchange of business information (such as financial reports and audit schedules).

It can help organisations that exchange business data to understand each other's figures - by defining the precise meaning and values of all the data. In each case, the meaning is defined using a 'taxonomy' - a formal description and classification of the contents of accounting reports.

Why choose XBRL?
XBRL is basically just another method of passing information from one place to another - an activity which could perfectly well be carried out in several different ways.

However, following a pilot trial, the FSA has chosen to use XBRL because it believes that it will:

	Maximise the efficiency of its regulatory reporting, minimising costs
	Make information requirements clearer
	Ultimately make it easier for companies to do business with the FSA

Here are the main benefits and drawbacks of XBRL for users, so that you can form your own opinion of the possible implications for your company:

  Drawbacks

An unknown quantity
XBRL has been around since 2000, but is not very familiar to most UK insurance firms and their software suppliers. Although the FSA has made it clear that XBRL will be used for the electronic collection of regulatory returns, the precise details have not yet been finalised. The final specification will be produced by 30th June 2004 (although a draft will be available in April), to provide a year's notice before the first reports have to be submitted.
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The potential cost
Some market practitioners are concerned that the adoption of XBRL as the standard for the FSA could herald major costs in terms of additional software development. The precise cost will depend on the specifics of companies' systems and how these relate to the released regulatory requirements.

The FSA has said, however, that companies will be able to cope with the change without having to install expensive and sophisticated computer hardware.

  Benefits

Accurate data submission Any submissions can be automatically and consistently checked by software prior to submission, to ensure that they are in the right format. This means that you can be confident that any data you send to the FSA is correctly presented.

The FSA can manipulate and examine the data easily, using existing tools. It can also add further taxonomies without compromising the validity of the data that already resides on the system.

Flexible data submission The FSA is likely to ask some businesses for additional, individually specified data, known as 'Specialist Annexes'. These will supplement the two basic types of information that are always submitted: 'Standing Data' and 'Basic Reporting Data'. Using XBRL provides a clear way of defining these additional submission(s) which can be ad hoc, whilst also following consistent standards.

Recognised standards for submission XBRL data standards are linked to recognised accounting standards. XBRL has already been adopted by a number of leading organisations, including the Inland Revenue and the Federal Deposit Insurance Corporation.

  Conclusion

Although your systems may need to be extended to deal with the new requirements, these changes may not be as difficult or as demanding as some recent scare stories appear to suggest.

Ultimately, if you want to make well-informed decisions about XBRL, you need to ensure that you discuss the possible implications with software suppliers who neither exaggerate or dismiss the potential difficulties of implementation. Also ensure that your software suppliers are attending FSA briefings on electronic reporting. If they are not, they will not be up to date with the latest FSA recommendations.

All things considered, XBRL is just a different format for data. Just because the collation and analysis of the data by the FSA may be a complex procedure, this doesn't necessarily apply to the production process. At the end of the day, insurers and brokers can't afford to ignore XBRL - but they may discover that the changeover to this new medium is not quite as difficult as some expect.

For more information on XBRL or other insurance technology issues, please contact Andrew Sedcole, Technical Director of Whitespace on 020 7240 0208 or email info@whitespace.co.uk.

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