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Ronan Bradley's FinanceTech Directions

Ronan Bradley

Has XBRL's time finally come with IBM's risk proposals?

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The XBRL standard is being proposed by IBM as the vehicle to deliver much greater transparency in risk management. In an unrelated development, also after many years as an optional reporting format for many financial regulators, it is to become mandatory (see this for an update on how its adoption by regulators is progressing). This combination means that XBRL is likely to be much more prominent in the future than it has been in the past - which will have implications for both vendors and customers in terms of their technology capabilities.

However, XBRL is far from new - I first ran into it back in 2001 or 2002 when it was coincidentally being promoted as the antidote to our last generation of corporate collapse (enron et al). For those readers not familiar with the standard, XBRL supports the expression of financial statements in XML format and to facilitate this has developed XML definitions of terms and the relationships between terms used both across all industries and within individual industries. By expressing all of this information in XML, it becomes possible to submit company reports electronically in a format which (unlike pdf for instance) enables the information to be sliced and diced to ensure compliance or indeed support any other analysis or even comparisons between companies or industries.

Therefore, it is natural to extend XBRL to focus on risk measurement in particular as IBM and its data governance council are doing with their proposed creation of a taxonomy of Risk based on XBRL. According to the data council chairman, Steve Adler:

"Creating a risk taxonomy using XBRL will provide a vocabulary and a common language allowing everyone to understand what risk means, and that's the first step in making it easier to calculate and report. When we have semantic clarity around the way organizations describe risk, incidents, events, losses, claims, exposures, forecasts and reserves, it gets easier to aggregate loss information, analyze it with standard actuarial methods, compare past exposures to present conditions and opportunities, and forecast potential outcomes."

This is clearly an ambitious goal but the question is not whether the standard can be defined but rather whether it can be implemented and whether there will be sufficient business or regulatory drivers to get it implemented.

The answer to the first question is probably yes: Unlike in 2001/2002 when XBRL was first promoted, there is now a much greater level of maturity around data integration and hence much of the required infrastructure is already in place. However, XBRL is an exacting standard and there may well be significant upgrades required to existing XML processing tools which often struggle with more complex schema standards.

The answer to the second question is entirely in the hands of the regulators and their political masters.

Ronan

1 Comment

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At least in the US, the mandate by the SEC today is more important than the IBM Data Council proposal. However, they both reinforce the point that XBRL has the requisite maturity and support to function as a key technology in our global financial infrastructure.

Ronan Bradley's blog on infrastructure technology news and trends in the retail banking, captial markets and beyond.

Ronan Bradley

Ronan Bradley has specialized in business integration technologies and their application for over 15 years, View more

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