Taxonomies for Transparency:

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

Laurent Collet (laurent.collet@lu.pwc.com)

European Leader, Financial Services XBRL

Director, PricewaterhouseCoopers

• 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

Challenges of Regulatory Reporting

Overcoming today’s challenges

Regulatedentities

Supervisor

Central Bank

Investors

Analysts

DataVendors

Auditors

RisksMngt.

Stock Exchanges

InternalCorporate Reporting

Government(Tax agencies)

N times sameinformation sent to N

entities

Consistency of the information ?

Consistencyof the

information ?

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

$

BankSupervisor

$

BankSupervisor$

BankSupervisor

$

BankSupervisor

$

BankSupervisor

$

BankSupervisor

$

BankSupervisor

$

BankSupervisor $

BankSupervisor

Five Principles for achieving efficiency

Structured filings

SharedVocabularies

Diversee-filing

methods

Uniformvalidations

Clear-cuttransitions

key building blocks for transitioning key building blocks for transitioning to a content-driven automated informationto a content-driven automated information

Leveraging structured filings

Let the software do the ‘non-added value’ work by enhancing the structure of your information…………

Before…..

After

Reduced administrative workload & Enhanced analysis

Read Assemble Present

Analyse

Read Assemble Present

AnalyseStructured data

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,….)

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

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

Five Principles for achieving efficiency

Structured filings

SharedVocabularies

Diversee-filing

methods

Uniformvalidations

Clear-cuttransitions

key building blocks for transitioning key building blocks for transitioning to a content-driven automated informationto a content-driven automated information

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

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 EUROPE’S FINANCIAL MARKETS - September 2004COMMENTS OF THE Federation Banque Européenne ON THE REPORTS OF THE BANKING AND SECURITIES GROUPS

Five Principles for achieving efficiency

Structured filings

SharedVocabularies

Diversee-filing

methods

Uniformvalidations

Clear-cuttransitions

key building blocks for transitioning key building blocks for transitioning to a content-driven automated informationto a content-driven automated information

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

– Tomorrow’s 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

e-filing cost reduction at the US FFIEC

Today

8900 Banks

FDIC OCC FRB OTS NCUA

Future

8900 Banks

FDIC OCC FRB OTS NCUA

FFIEC

FDIC estimates that by requiring reports to be filed in XBRL the agency will reduce processing costs by 25 percent.

Diverse e-filing methods opportunities

Five Principles for achieving efficiency

Structured filings

SharedVocabularies

Diversee-filing

methods

Uniformvalidations

Clear-cuttransitions

key building blocks for transitioning key building blocks for transitioning to a content-driven automated informationto a content-driven automated information

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

XML SCHEMA-LEVEL INFORMATION

1) Primitive data type : value of X = 9 digits and not negative2) Compound data structure : Cell A must contain values of B, C and D

XBRL TAXONOMY INFORMATION

3) Alternative naming : ‘Net income could refer to ‘income’ in other contexts4) Supporting documentation : formal item definition is provided in IAS 39 section V.I

5) Presentation conventions : Balance sheet info should be listed as follows,…6) Sum of data : Assets = current + non current assets

7) Semantic relationship : On form A, value of elements WY must equal value of XZ onform B

XBRL FORMULA INFORMATION

8) Computing data values : Box 5 is the max of Box 4 and 50 % of Box 39) Co-Constraints among data values : Box 3 is ‘true’ if and only if Box 2 is the same as Box 1

10) Cross documents constraints : Box 5 must be greater than value of Box 4 on last year’s form11) Distinguish among ‘fatal’ or ‘warning’ errors : If a negative value appears for Box 5 it MUST

be accompanied by a data text item with explanations

Validation and Submission

Public• Taxonomy• Formulas• Other links

Public• Taxonomy• Formulas• Other links

Re-validateRe-validate

AnalysisAnalysis

Pre-validatePre-validate

Post-validatePost-validate

Analyze• Formulas

Analyze• Formulas

InstanceInstance

Instance with explanations

Instance with explanations

Five Principles for achieving efficiency

Structured filings

SharedVocabularies

Diversee-filing

methods

Uniformvalidations

Clear-cuttransitions

key building blocks for transitioning key building blocks for transitioning to a content-driven automated informationto a content-driven automated information

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)

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

Taxonomies for Transparency:

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

Laurent Collet (laurent.collet@lu.pwc.com)

European Leader, Financial Services XBRL

Director, PricewaterhouseCoopers