XBRL: eXtensible business reporting language

The new language for risk reporting

In a fast-changing discipline like enterprise risk management, half the challenge stems from the tactical need to ensure all stakeholders are able to share information using a common language and pre-defined terms. The fact is, reporting in financial services risk management circles has largely been characterized by a mixture of incompatible formats, vocabularies, definitions and formulas. There is little agreement on terms and what they mean.

Today, companies need a single global standard for measuring, predicting and communicating the various components of enterprise risk and reporting loss events to regulators. Implemented properly, that standard could lead to better-defined data that can be aggregated, trended and analyzed for better risk forecasting, creating a more robust insurance market and enabling some companies to remove certain risks from the balance sheets.

Increasingly, risk experts are pointing to extensible business reporting language (XBRL). XBRL is an emerging XML-based standard to define and exchange business and financial performance information. It provides a standards-based way to communicate business and financial performance data using metadata set out in taxonomies. These taxonomies capture the definitions of individual reporting elements as the interrelationships of the elements. Recently, IBM proposed creating an XBRL taxonomy targeted at risk management that would standardize risk assessments and loss reporting and give regulators the risk pulse of a financial system.

XBRL and COREP
XBRL adoption has been slower in the US, although it has been pushed by both the IRS and the SEC. Since Europe has such a diverse range of reporting entities, pan-European regulators have embraced XBRL more emphatically. For instance, it has been widely adopted in many European countries, thanks to the aggres­sive promotion of the Central European Banking Committee and its Common Reporting (COREP) standard. All financial services companies in countries where COREP has been adopted must report in COREP and, increasingly, regulators in various countries are calling for their companies to use XBRL in their filings. Essentially, the COREP reports have become a set of XBRL taxonomies.

SAS solutions for risk management can address XBRL COREP reporting. SAS performs all of the calculations that a company may require – using standard definitions and the company’s internal terms, definitions and formulas.

The SAS XBRL COREP engine is based on a set of configurable metadata to map the actual company data to the XBRL definitions. It allows the institu­tion to report COREP templates directly in XBRL format. From this point of view, the XBRL format is analogous to PDF or Excel formats. Once the metadata is defined, the XBRL engine produces the final instance files and the company needs only to check those with internal validation tools.

It is worth noting that CEBS (Committee of European Banking Supervisors) issued the standard COREP formats, leaving each country regulator to extend these base taxonomies to include specific information such as local labels and more detailed data about some facts.

The XBRL engine can manage these country specific extensions as well. Our consulting teams in Europe have done exactly that for SAS customers. For instance, for a major bank in Finland, SAS managed taxonomy extensions that enable it to produce more data. All that was required: a few changes to the metadata. The same strategy would also enable a US-based bank to issue COREP reports to European regulators – simply by adopting the appropriate XBRL taxonomy.

Increase speed, reduce cost
XBRL can enable new levels of speed and sophistication in all areas of business reporting and analysis – especially risk management. Those benefits occur in the ability to automate and accelerate challenging reporting processes, reduce costs, improve accuracy and reliability, and enhance the overall analysis and decision-making processes with respect to risk issues. With XBRL and appropriate taxonomies, producers and consumers of financial data can shift their resources from time- and cost-intensive manual processes to focus on analysis using software that can validate and manipulate XBRL information. For instance, searches for particular data that might have previously taken hours can be completed instantly using XBRL.

Despite the enormous potential that XBRL offers to facilitate apples-to apples comparisons, a truly global effort is required to generate the necessary momentum to implement this standard. There must be a concerted and sustained effort to define what the metrics are, how to calculate them and what dimensions are used for those metrics. Once the schema is complete and approved, there must be an international regulatory body to enforce the use of XBRL and associated taxonomies. Once in place, all stakeholders will be in a better position to generate the same risk reports and improve their ability to manage, regulate – and hope­fully, reduce – risk exposures.

Ivano Dei Giudici
Enterprise Data Warehousing and Reporting Technical Advisor
Risk Management and SAS Solutions Architect for the financial services sector
Ivano.DeiGiudici@ita.sas.com