It's 2007 and the world of business regulation is in the throes of its own tsunami of unforeseen events and unpredictable consequences.

In response to massive corporate accounting scandals, a new information management environment has emerged: An environment that expects optimum information transparency, especially in financial reporting. New non-proprietary standards like extensible Business Reporting Language (XBRL) and IFRS, for formatting financial data and structuring financial reports, are sweeping the globe.

Businesses are adapting to an operating environment increasingly focused on improved corporate governance and better risk management through compliance with new regulatory controls such as Sarbanes-Oxley and Basel II. And investors continue to press for higher quality information about business performance to support and justify their investments.

In the midst of all this, regulators must still keep up with the constantly shifting sands of a global market in which a housing crisis in one country can spark a run on a bank in another. The UK’s Financial Services Authority (FSA) recently experienced this when mortgage repossessions in the USA caused the first run on a British bank in over 150 years, putting the FSA in the glare of the media spotlight. Now more than ever, effective regulation depends on an electronic information supply chain to deliver timely, accurate data in digital formats to facilitate faster and more comprehensive information delivery and analysis. But regulators around the world are rising to the challenge of this changing environment.

Former Chairman Christopher Cox of the USA’s Securities and Exchange Commission (SEC) has been advocating what he calls “interactive data” for some years now. His vision is that this data format will help to better serve two key stakeholders of the SEC by making “SEC reporting easier for registrants and easier to understand for every investor.” On September 25, 2007, Chairman Cox unveiled a new standard for filing information to the SEC, based on XBRL, and outlined a timetable for a final recommendation on broad XBRL adoption by Spring 2008. Meanwhile in Singapore, the Accounting and Corporate Regulatory Authority (ACRA) has already mandated that all company annual returns must be filed in XBRL format after November 1, 2007.

In the European Union, Companies House in the UK and Sweden’s Bolagsverket are the regulators responsible for business registration and collecting the annual returns of these businesses in their respective countries. Both have improved their information supply chain by offering new XBRL-based options for companies to file their annual returns. Many other business regulators in the EU are also investigating and evaluating how to improve their information supply chain.

In the banking sector, regulators all over the world including the USA’s FFIEC, the National Bank of Belgium, the Bank of Japan and the Bank of Spain are streamlining the way that they receive and review the information they collect. The same is true of the Shanghai Stock Exchange and the Singapore Financial Regulatory Authority who have both mandated the use of XBRL in regulatory reporting as they are increasingly aware that they must compete in a global market for the stock market listings that are their lifeblood. Globally, over 2,000,000 companies will file financial reports with various regulators in XBRL format this year.

So what is the information supply chain that all these regulators are working to improve and how are they going about introducing real qualitative change?

The Information Supply Chain for Regulators

The information supply chain for Regulators involves a number of stakeholders, all of whom have some interest in the information output, including:

Government

Other higher-level “oversight” regulators or ombudsmen;

The specific business filing community managed by the regulator;

The regulatory domain’s information consumer community.

This information consumer community also comprises a range of different constituencies:

The regulator’s own internal data auditing and compliance staff

Third Party data aggregators and publishers

The business filers themselves

Financial analysts, brokers and independent advisors

The regulator’s internal auditing and compliance staff are interested in data accuracy and completeness and in identifying meaningful exceptions in the data that may warrant further investigation. Third party data aggregators, like Reuters or Standard and Poors (S&P) for example, consume the publicly available data provided by the regulator to add value to it and sell it on to information consumers. These consumers may include both the original business filers and other interested parties such as financial analysts, brokers and advisors.

Figure 1 – The Information Supply Chain

As figure 1 shows, all these stakeholders may participate in a supply chain that begins with a regulatory filing event and ends with information insight reaching a specific information consumer. Business filers provide the raw data that the regulator formats, stores and analyzes for its primary regulatory purpose. If allowed or required in the regulator’s specific jurisdiction, feeds from this data may be provided to third party information agencies that add their own proprietary value and sell the enhanced information on to interested consumers.

In the past, this supply chain was entirely dependent on data provided to the regulator on paper or through basic HTML web forms. Paper submissions forced time-consuming scanning to digitize the reports and error-prone re-keying of data into databases by the regulator’s staff, representing significant non-added-value activities. Enabling the filing of returns electronically, say in the form of a PDF file or a web form, reduces the scanning overhead but not the re-keying or re-formatting of data that needs to be “taken off” the reports. This is why many regulators are looking to new ways of receiving and managing their data and why many have opted to use data that has been “pre-formatted” using XBRL.