Taxonomies for Transparency: Five principles for regulatory efficiency and effectiveness of XBRL deployment in Europe

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Taxonomies for TransparencyFive principles for
regulatory efficiency and effectiveness of XBRL
deployment in Europe

• Laurent Collet (laurent.collet_at_lu.pwc.com)
• European Leader, Financial Services XBRL
• Director, PricewaterhouseCoopers

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Challenges of Regulatory Reporting

• New European regulation framework
• EU Directives (Transparency, Prospectus, UCITS 3,
  Market Abuse, Financial reporting IFRS)
• Basel II / Credit risks
• The new regulation changes in addition of a
  non-optimal current reporting flow is a real
  concern within the financial services industry
• Industry will have to move towards new innovative
  solutions to overcome bottlenecks and meet new EU
  directives

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Overcoming todays challenges
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Overcoming future challenges

• Enhance supervisory co-operation in Europe
• Promote information exchange between supervisory
  authorities (all sectors)
• Provide financial information to all supply chain
  members in an open and transparent manner
• Set up a common framework and standard for the
  collect and publication of the financial
  information

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Five Principles for achieving efficiency
key building blocks for transitioning to a
content-driven automated information
Shared Vocabularies
Diverse e-filing methods
Structured filings
Uniform validations
Clear-cut transitions
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Leveraging structured filings

• Let the software do the non-added value work by
  enhancing the structure of your information

Before..
Reduced administrative workload Enhanced
analysis
After
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Leveraging structured filings

• Making software capable of performing the
  information preparation process
• Reduce the error rate due to manual intervention
• Enable resources re-deployment to added value
  tasks
• Speed the process
• Making software capable of understanding and
  processing the information means
• Define data at its most basic level
• Define how data relates to other data
• Propose a meaningful definition to both producer
  and consumer
• Defining data for structured regulatory reporting
  involves the regulators and all other supply
  chain members (regulated entities, other
  regulators, auditors, data vendors, investors,.)

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Leveraging structured filingsIllustration the
simplified prospectus under the new UCITS III

• Fund Managers have to produce simplified
  prospectus (standing data, performance, fees,
  Total Expense Ratio,.) for the analysts,
  investors and update it annually for the
  regulators
• Fund Managers have to prepare monthly, quarterly,
  annual financial reports to the regulator
• Regulators collect and store the structured data
  under XBRL taxonomy from simplified prospectus
  and financial reports
• Regulators enhance the validation and the
  consistence of information within financial
  reports and between the financial reports and the
  simplified prospectus

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Leveraging structured filingsIllustration the
simplified prospectus under the new UCITS III

• Each year, regulators can save the reading,
  collection and presentation of more than 15,000
  documents (simplified prospectus financial
  reports)
• Saving time is dedicated to the analysis and data
  consistency between actual financial figures and
  prospectuses information

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Five Principles for achieving efficiency
key building blocks for transitioning to a
content-driven automated information
Shared Vocabularies
Diverse e-filing methods
Structured filings
Uniform validations
Clear-cut transitions
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Establishing shared vocabularies

• Achieving efficiency for regulatory reporting is
  first of all a question of common vocabulary
  (functional) design rather than technology design
• Shared vocabularies among the supply chain are
  core to
• Facilitate the set up of a global integrated
  reporting framework
• Avoid redundant data and reporting processes
• Reduce information collection and processing
  costs
• The establishment of shared vocabularies refers
  to the set up of data classification schemes
• Hierarchical to allow classifications at multiple
  level
• Suitable for both numeric and non numeric data
• Versioned, allowing for evolution of scheme
• International and multilingual
• Extensible by regional or sector authorities or
  even by companies

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Establishing shared vocabularies
To the extent that there is a shift from
quantitative to qualitative supervision, new
additional tasks should not be introduced without
critically questioning existing regulatory
requirements. Regulatory tools and reporting
requirements that have become obsolete should be
abolished without replacement. XBRL provides
organisations with a way to prepare, publish in a
variety of formats, reliably extract, and
automatically exchange a wide variety of business
reporting information financial and
otherwise. the time is ripe for regulators to
(i) examine, together with the banking industry
if -and to what extent- they wish to promote the
use of XBRL to cooperate across borders and (ii)
take advantage of such an opportunity to
re-assess not just the broad principles
associated with regulation but also the specific
definitions of regulatory reporting concepts.
STATE OF INTEGRATION OF EUROPES FINANCIAL
MARKETS - September 2004 COMMENTS OF THE
Federation Banque Européenne ON THE REPORTS OF
THE BANKING AND SECURITIES GROUPS
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Five Principles for achieving efficiency
key building blocks for transitioning to a
content-driven automated information
Shared Vocabularies
Diverse e-filing methods
Structured filings
Uniform validations
Clear-cut transitions
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Allowing diverse e-filing methods

• Why allow diverse e-filling methods?
• Reporting filling methods based on regulator
  proprietary or unique software solutions are
  showing clear limitations and are globally
  perceived as too costly
• Current solutions based on older technologies
  like EDI can not support the data structure
  flexibility required by new regulations like
  Basel 2 or IFRS
• E-filing is not only about turning paper reports
  into electronic reports because that gives no
  process efficiencies
• Tomorrows technology environment will likely be
  composed of as many or even more disparate
  technologies
• Web services and XBRL allow different e-filling
  methods without requiring change of technology or
  creation of interfaces

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e-filing cost reduction at the US FFIEC
FDIC
OCC
FRB
OTS
NCUA
Today
FDIC estimates that by requiring reports to be
filed in XBRL the agency will reduce processing
costs by 25 percent.
8900 Banks
FDIC
OCC
FRB
OTS
NCUA
FFIEC
Future
8900 Banks
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Diverse e-filing methods opportunities
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Five Principles for achieving efficiency
key building blocks for transitioning to a
content-driven automated information
Shared Vocabularies
Diverse e-filing methods
Structured filings
Uniform validations
Clear-cut transitions
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Uniform Validation

• Leverage from XBRL unique functionalities to
  achieve content management far above the notion
  of electronic form and XML schema

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Validation and Submission

• Public
• Taxonomy
• Formulas
• Other links

• Analyze
• Formulas

Pre-validate
Analysis
Re-validate
Post-validate
Instance
Instance with explanations
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Five Principles for achieving efficiency
key building blocks for transitioning to a
content-driven automated information
Shared Vocabularies
Diverse e-filing methods
Structured filings
Uniform validations
Clear-cut transitions
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Enabling clear-cut transitions

• The lost-lost case scenario
• Stand alone reporting model developed by
  regulators
• Regulated entities waiting the final results
• A win-win scenario
• Leadership must invest effort in education and
  knowledge transfer
• Demonstrate added value of the new solutions and
  prepare users to change via proof of concepts
• Set up dedicated team to focus on maintenance,
  consistency and change management aspects
  (maintenance organisation team at Dutch
  Government project)

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Towards standards based reporting

• Awareness is done.. deployment time is coming
• Regulators have integrated XBRL as a reporting
  solution for the future
• Several European projects about enhanced
  regulatory framework (Spain, U.K, The
  Netherlands, Belgium, Germany, Ireland,)
• Today, local regulators and European supervisory
  committees have the keys to
• Promote a global framework which facilitates
  market transparency
• Facilitate the exchange of information between
  regulators / supervisors
• Answer to regulated entities concerns about the
  cost
• Proprietary solution for supervisor may look good
  to the supervisor but costly and complex for the
  regulated companies
• XBRL Web services are a unique solution to set
  up the basis for an European framework where
  financial information can be exchanged and shared
  in an open and transparent manner

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Taxonomies for TransparencyFive principles for
regulatory efficiency and effectiveness of XBRL
deployment in Europe

• Laurent Collet (laurent.collet_at_lu.pwc.com)
• European Leader, Financial Services XBRL
• Director, PricewaterhouseCoopers