Deloitte Consulting CVBA/SCRL

Administrative burden measurement program -XI European Banking Supervisors XBRL Workshop

20 November 2009: 11.00 – 11.45Kurt Cogghe

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Agenda

EU project on administrative burden measurement and reduction

From measurement to reduction of the burden

Interoperability at EU level and between EU and Member States

Conclusions and questions

EU project on administrative burden measurement and reduction

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The European Commission is driving an ambitious strategy to measure and reduce administrative burden for businesses imposed by current EU legislation.

In January 2007, the Commission presented an ambitious Action Programme, endorsed by the Spring European Council in March 2007, aimed at reducing administrative burden on businesses in the EU by 25% in 2012.

The Action programme uses the Standard Cost Model of the EU to identify information obligations, representing the largest administrative costs on businesses in the selected priority areas, in order to measure and develop reduction recommendations.

The Consortium consisting of Deloitte Consulting, Capgemini Consulting and Ramboll Management has been engaged to manage the EU AB project.

The project started in September 2007 and will now be extended to prolongue the efforts of the Consortium.

The Commission will launch a big communication on the Action Programme in October 2009. This communication will include the study results, the initiatives taken by the DG’s and the Member States to implement the recommendations as well as the programme’s next steps.

Scope of the measurement work

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Total EU law EU AB program 13 Priority Areas are selected

Based on mapping of IOs stemming from 43 legislative acts, 20% of IOs are measured

(workshop / interview) and the cost of 80% remaining IOs is estimated by experts

For every priority area, field measurements are gathered in 6 member states; Data from 4

Member States with existing measurements are used as well.

For the 17 remaining Member States, data are estimated based on measurements from other

Member States.

For every IO to be measured, 5 companies are interviewed.

€The measurement results are extrapolated to obtain results in the

27 Member States

13 Priority Areas 43 Legislative acts

EU IOs IOs to be measured

17 Member States 6 MS 4 MS

Total number of companies 5 companies

Within 13 Priority Areas, 43 EU legislative acts are covered

Expert estimations

The project scope is unique in its size…

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Agriculture and Agricultural Subsidies

Environment

Cohesion Policy

Fisheries

Company Law

Financial Services

1

2

3

4

5

6

Food Safety

Statistics

Public Procurement

Transport

Pharmaceutical Legislation

Value Added Tax

7

8

9

10

11

12

Working Conditions13

Measuring administrative burden stemming from 43 pieces of legislation expected to account for 80% of total EU red tape

Unique coverage of 13 policy domains

…as well as in its complexity

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An innovative methodology allowing us to identify the administrative cost at European level and to quantify potential reductions in red tape

Analysis covering 27 Member States

An intensive data collection phase…

Over 3.000 interviews with businesses covering all 27 Member States

Approximately 100 workshops with businesses and industry experts

Approximately 500 meetings and workshops with national government authorities and European Commission officials

… leading to a unique intelligence

Over 6.000 cost data collected and documented, stored in a specially developed IT tool

Approximately 350 documented processes describing how businesses comply with the legal obligations

Benchmark data comparing policy domains, countries, company sizes and sectors…

Approx. 400 identified specific reduction recommendations out of which 100 have been further analysed and 24 are prepared for implementation

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Agenda

EU project on administrative burden measurement and reduction

From measurement to reduction of the burden

Interoperability at EU level and between EU and Member States

Conclusions and questions

Maximum reduction potential can be realised through a combination of legal changes, process optimisations and e-Government solutions

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E-Government

Reduction Initiativesat EU Level

Legal

Process

9%

24%

61%

6%

Reduction Initiativesat National Level

Interoperability / Harmonising standards

Overall measurement results for the 13 Priority Areas

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• The following table provides a detailed overview of the total administrative cost, the business-as-usual costs (BAU) and administrative burden distribution across the measured Priority Areas.

Priority Area

Admin. Cost (AC)s BAU (business-as-usual)

Admin. Burden (AB)

AC (€ x1,000)

Share of Total AC (%)

Cost (€ x1,000)

Share of AC (%)

AB (€ x1,000)

Share of AC (%)

Tax Law (VAT) 79,512,106 62.8 9,998,600

12.6 69,513,506

87.4

Annual Accounts / Company Law 25,271,932 20.0 11,550,654 45.7 13,721,278 54.3

Food Safety 5,501,385 4.3 1,573,480 28.6 3,927,905 71.4

Working environment / employment relations 4,260,634 3.4 474,243 11.1 3,786,392 88.9

Agriculture and Agricultural Subsidies 4,007,998 3.2 184,924 4.6 3,823,074 95.4

Transport 3,104,506 2.4 77,694 2.5 3,026,812 97.5

Financial Services 1,357,720 1.1 642,477 47.3 715,243 52.7

Cohesion policy 929,125 0.7 0 0.0 929,125 100.0

Pharmaceutical legislation 920,403 0.7 75,360 8.2 845,043 91.8

Environment 727,372 0.6 105,369 14.5 622,003 85.5

Statistics 628,881 0.5 76,630 12.2 552,252 87.8

Public Procurement 234,223 0.2 17,917 7.6 216,306 92.4

Fisheries 79,696 0.1 5,833 7.3 73,863 92.7

Total 126,535,984 100.0 24,783,181

19.6 101,752,803

80.4

Overall reduction potential results for the 13 Priority Areas

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Priority Area

Total Administrative Burden (kEuro)

Impact of reduction proposals on business

Impact (kEuro) Impact (%)Fisheries 73,863 46,319 62.7%Annual Accounts/Company Law 13,958,508 8,320,793 59.6%Agriculture and Agricultural Subsidies 3,823,074 1,847,192 48.3%Tax Law (VAT) 69,236,350 29,475,711 42.6%Statistics 552,252 193,222 35.0%Public Procurement 216,306 73,604 34.0%Cohesion policy 929,126 243,396 26.2%Transport 3,026,811 763,832 25.2%Working environment / Employment relations

3,786,392 903,339 23.9%

Environment 622,003 128,010 20.6%Food Safety 3,927,905 692,830 17.6%Pharmaceutical Legislation 845,043 119,339 14.1%Financial Services 715,243 79,367 11.1%Total 101,712,878 44,881,993 44.1%

Legal acts and IOs in scope for the FSI recommendation

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Legal acts:

Directive 2006/48/EC of the European Parliament and of the Council of 14 June 2006 relating to the taking up and pursuit of the business of credit institutions (recast): Article 74.2 – “Reporting of results of the verification of compliance with rules on the level of own funds”.

Directive 2006/49/EC of the European Parliament and of the Council of 14 June 2006 on the capital adequacy of investment firms and credit institutions (recast): Article 35.1-4 – “Reporting to competent authorities on compliance with rules.”

Directive 2002/83/EC Directive 2002/83/EC of the European Parliament and of the Council of 5 November 2002 concerning life assurance is also in scope for the part of the Recommendation relating to expanded use of XBRL for additional reporting requirements in future

Information Obligations:

IO 1) “Reporting of results of the verification of compliance with rules on the level of own funds”, (Article 74, para. 2 of Directive 2006/48/EC

IO 2) “Reporting to competent authorities on compliance with rules” (Article 35(1-4) of Directive 2006/49/EC)

Main findings for the FSI

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– 49 EU requirements + 4 Possibilities mapped

– Transposition resulted in 1,234 national requirements

– Measurement was conducted in Italy, Lithuania, Luxembourg, Poland, Spain and Slovenia

– The overall administrative cost for the selected pieces of legislation = €1,357 million EU-wide

– Of the €1,357 million due to EU IOs and Possibilities, 53% (ca. €715 million) has been classified as administrative burden

– Five IOs alone account for 96.5% of the total administrative cost arising from EU IOs

EU Legislation in scopeDirective 2002/83/EC concerning life assurance.

Directive 2006/48/EC relating to the taking up and pursuit of the business of credit institutions

Directive 2006/49/EC on the capital adequacy of investment firms and credit institutions.

2002/8337%

2006/4831%

2006/4932%

Share of administrative cost per legislation

Most burdensome IOs identified for Financial Services

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EU requirement EU legislation Article No.Administrative

cost (€ x 1,000)

Administrative burden(i.e. without business-as-usual

costs”)

Admin. burden (€ x 1,000)

Share of admin. cost (%)

1. Provision of information to the policy holder

Directive 2002/83/EC Art. 36 494,433.40 370,825.10 75

2. Proof for internal review Directive 2006/48/EC Art. 123 318,569.80 159,284.90 50

3. Keeping a trading book Directive 2006/49/EC Art. 11(1) 262,748.70 0 0

4. Reporting to competent authorities on compliance with rules

Directive 2006/49/EC Art. 35(1-4) 168,365.90 126,274.40 75

5. Public disclosure of information by credit institutions

Directive 2006/48/ECArt. 145 to 149;

Art.17266,665.80 16,667.90 25

From measurement to reduction of the burden

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Assessment of different ways to reduce the burden:

– Change of the legal framework

– Process optimisation

– E-Government potential

Initiatives at two levels:

– At European level

– At national level (best practices)

Result for the 13 Priority Areas in scope of the project:

More than 320 recommendations mapped

100 recommendations shortlisted

23 recommendation prioritised by the European Commission

Main Financial Services Recommendation (1)

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Harmonise the use of XBRL-based COmmon solvency ratio REPorting (COREP) in the EU and use as a basis for extension of XBRL reporting to other reporting requirements to and amongst supervisors

Potential burden reduction:COREP harmonisation:substantial

XBRL applied to further reporting requirements: substantial

AS IS situation and critical analysis

Administrative costs and burden are created due to the failure to harmonise the reporting requirements across Member States, as institutions have to familiarise themselves with the specific reporting requirements across Member States, and have to implement changes to systems in order to comply with the specific national requirements.

In addition to imposing an increased burden on the industry, the lack of a harmonised reporting structure also impedes the efficient exchange of information among Member States. As a recent example of supervisory difficulties, the de Larosière group pointed out specifically that no common reporting formats have been agreed.

The Committee of European Banking Supervisors (CEBS) has initiated a common framework for addressing this. Known as COREP (COmmon solvency ratio REPorting - COREP), this aims at harmonisation of reporting of solvency requirements. CEBS initiated this work in support of the reporting required under Basel II.

As part of the adoption of the COREP framework across the European Economic Area, some countries have decided to use XBRL (eXtensible Business Reporting Language), a type of XML (eXtensible Markup Language).

The actual implementation of the taxonomies is not fully aligned across EU Member States as some countries have developed national extension taxonomies. Second, not all countries use XBRL.

Main Financial Services Recommendation (2)

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Proposed TO BE situation

The Recommendation aims at easing the business process which financial institutions have to fulfil for complying with the IOs in scope. Multinational institutions are the target group.

If the way Basel II prudential reporting is conducted were harmonised, this would be done by means of:• Applying standardised COREP-templates;• Excluding the possibility of adding additional reporting fields to the templates at a national level;• Applying XBRL as the standard open-standard-based electronic transmission of financial information

Advantages of the recommendation

Harmonisation of both reporting format and reporting technology will contribute to the objective of reducing the administrative burden for the financial services industry, and is also an important factor in ease of information sharing amongst supervisory authorities and enhances comparability between national entities of an international firm.

As CEBS has already developed an XBRL taxonomy for their COREP templates, using XBRL for other IOs might lead to efficiency gains. Obviously, also other open-standard-based electronic transmission could be considered.

The use of electronic reporting allows for automation of:• Data collection at the credit institution, investment firm or assurance undertaking;• Reporting;• Processing by the regulator.This results in:• Faster reporting;• Accurate reporting;• Faster responses.

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Agenda

EU project on administrative burden measurement and reduction

From measurement to reduction of the burden

Interoperability at EU level and between EU and Member States

Conclusions and questions

Interoperability advisory in current projects (1)

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ENTERPRISES NATIONAL GOVERNMENT

SUPRANATIONALGOVERNMENT

Position of XBRL in financial datawarehouse architecture. Use of XBRL for corporate consolidation: Deloitte’s consolidation center of excellence.

EC DG Enterprise – ALIFE: administrative burden reduction, redesign of information obligations.

EC DG Digit – European interoperability strategy (IDABC): communication between member states & the EU.

National institutions: taxonomy advisory,….

National institutions

“ALIFE”

Admin burden reduction

European interoperabilitystrategy

- Financial DWH architecture- Consolidation

Variousclients

Interoperability advisory in current projects (2)Supporting the European Interoperability Strategy Elaboration

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Politics and legal

Information exchange

Service offerings

Processes and organisation

What legal and political issues are

involved?

What information is needed to comply

to political and legal constraints?

How will we organize the

information, what stakeholders are

involved?

What technologies are involved, what procedures do we

need to follow?

How are the services be

concretised, what are the concrete interoperability requirements?

How does the managed service data maps on the information needs (eg. Semantics)?

Political evaluation, new laws,...?

What services are useful to help gathering and managing the

needed information?

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Agenda

EU project on administrative burden measurement and reduction

From measurement to reduction of the burden

Interoperability at EU level and between EU and Member States

Conclusions and questions

Topics to take into consideration

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Financial crisis leads to pressure for more regulation of FSI…

Lack of trust in FSI leads to demand for direct control also at micro-level…

More regulation / control leads typically to more administrative burden…

Financial institutions and governments / administrations are under high pressure to reduce costs…

Processes will need to be implemented in a cost efficient and highly coordinated way

(across financial institutions / national banks / ECB / EC)

… and all of this in an ever changing environment (cf. the reform of the European financial supervision)