The FCA Wants You to Know That It Knows Technology Exists

On the surface, these could have been any two documents from the FSA. A wavey logo in the corner supplements stock photos of men and women in the street, curiously illuminated by the shining light of regulatory reform. Sing Hosanna! It's the Financial Conduct Authority (FCA)!

Come April 1, the UK regulatory landscape will essentially be split between the FCA and the Prudential Regulatory Authority (PRA), with oversight from the Bank of England (BoE). While the idea is to split basic regulatory tasks between the two agencies, to enable more effective and judicious oversight, they overlap in several key areas, which will be explained in an upcoming article on Sell-Side Technology.

In its business plan and risk outlook, the FCA touches (from a consumer-centric perspective) on several issues in financial markets, and particularly with technology, it devotes at least two pages from around 150 total. Market surveillance and reporting will be important, and, stop the press, technology has definitely had an impact on the markets.

Digging Deeper
It's hardly the level of granularity that inspires confidence, given the lengths to which foreign counterparts such as the US Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) have been going to of late, despite their faults.

"We have further automated and enhanced our interrogation of the information we collect within the ZEN database," says the report. "ZEN is the system that collects and holds the transaction reports that reflect the daily financial instrument transactions undertaken by firms and reported to us (as required and defined by Mifid). We have upgraded our technology to improve our surveillance and detection of market abuse to reinforce our credible deterrence strategy. This upgrade will help us to more effectively process the notifications of suspicious trading that we receive from industry, and improve our ability to monitor failure to submit suspicious notifications."

We have upgraded our technology to improve our surveillance and detection of market abuse to reinforce our credible deterrence strategy.

And that's about as far as it goes. However, the FCA will be spending a fair amount of its budget in 2013 on IT. £76.4 million ($116 million), or approximately 17 percent of its overall budget, will go on IT systems, while a further £44 million ($66 million), or 10 percent, is sequestered for 'depreciation', 30 percent of which refers to the FCA's most important data collection and monitoring systems.

Sharing Beds
And, just like a young couple, broken up but forced to live with one another until they find a new home, the PRA and FCA will still share a fair amount during the cooling-off period. The premises in Edinburgh and Canary Wharf, London, are still contracted, while the two bodies will share IT platforms and data repositories to avoid duplication of efforts. The FCA, too, is planning on revamping its secure file transfer system for exchanges and market participants over the next two years. On a core level, the FCA and PRA will share four main systems─TARDIS, its internal firm database, GABRIEL, for regulatory reporting, the FSA register and its Business Intelligence System.

Overall, much of it makes sense. However, as usual, the lack of specificity surrounding the FCA's approach to technology and the vagueness with which it's referred to and addressed creates concern. For example, how does the FCA plan to interact technologically with pan-European systems such as Target2-Securities (I know, the UK isn't part of it, but you'd imagine the data might be useful), or how will it exchange data for firms that are dual regulated by both the FCA/PRA and the CFTC/SEC? Assumedly, these will be addressed in more detail later on, but there's not much to go on for now.