Standard Business Reporting: Open Data to Cut Compliance Costs

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Introduction

Regulatory compliance imposes heavy costs on the private sector. A 2014 study commissioned by the National Association of Manufacturers, for example, estimated that U.S. federal regulations cost companies $2.028 trillion annually.¹ A survey of manufacturing firms indicated that full-time staff and consultants devoted to regulatory compliance represented the majority of these costs.²

Regulatory compliance imposes heavy costs on government, too. In fiscal year 2016, the U.S. Securities and Exchange Commission estimated it would spend over half its budget to “foster and enforce compliance,”³ the Federal Reserve Board of Governors’ banking supervision and regulation division was its most expensive,⁴ the Internal Revenue Service planned to invest over one-third of its budget on enforcement,⁵  and the Census Bureau’s most expensive program, aside from the five- and ten-year economic and population censuses themselves, was the one charged with maintaining its Business Register, with information on over 31 million U.S. business establishments.⁶

For the private sector, regulatory compliance involves compiling information and reporting it, at periodic intervals or when triggering events occur, to government agencies. For government, regulatory compliance involves receiving, reviewing, and acting on that information. For the private sector and government alike, these tasks involve a great deal of manual labor.

In all developed countries, including the United States, regulatory compliance is fragmented by industry and by purpose. Government agencies specialize in tax, securities, banking, statistics, workforce, environmental, and many other matters. Each agency, separately, has the legal authority to impose restrictions on, and collect information from, regulated companies and other entities.

Regulatory agencies’ reporting requirements overlap with one another. For example, a 2011 study found that a large U.S. company was obliged to report substantially the same information, packaged differently, to the Securities and Exchange Commission, Federal Reserve, Census Bureau, and Bureau of Economic Analysis.⁷

Evidence demonstrates similar challenges faced by companies in the European Union. A consultation conducted by the European Commission Directorate General Financial Stability, Financial Services and Capital Markets Union, between September 2015 and January 2016 reveals that 288 respondents cited  “Reporting and disclosure obligations” and “Overlaps, duplications and inconsistencies” as major hurdles.⁸

[A] 2011 study found that a large U.S. company was obliged to report substantially the same information, packaged differently, to the Securities and Exchange Commission, Federal Reserve, Census Bureau, and Bureau of Economic Analysis.

Around the world, governments are choosing to transform their information from disconnected documents into open data. For our purposes, the term open data refers to information that is made interoperable using standardized definitions and digital formats, and digitally published and freely available for use and reuse by its users.⁹ The key, of course, is interoperability, which allows diverse systems and organizations to exchange and use one another’s data without having to translate it. 

For companies as well as agencies, open data offers significant efficiencies by reducing processing time and costs. First, if government agencies standardize data fields and formats for the information they collect, rather than expressing that information as unstructured documents, reporting companies’ software can automatically compile and report it, reducing manual labor. Quality improves; human ‘fat fingering’ is eliminated.

Second, if multiple agencies align their fields and formats with one another by adopting universal standards for overlapping information, companies can submit the same information once, rather than multiple times to each agency. 

Meanwhile, open data promises to cut regulatory agencies’ costs and reduce their risks by allowing them to get and use regulatory information more quickly, shortening the processing required for data analysis. In the United States, for example, simple data matching could have revealed Bernie Madoff’s fraudulent activities before his financial firm collapsed,¹⁰ allowed agencies to quickly gauge the financial industry’s exposure to Lehman Brothers while deciding whether to initiate a bailout,¹¹ and indicated that the fuel cell manufacturer Solyndra was the riskiest recipient of a federal loan guarantee well before its 2011 bankruptcy – if the relevant information had been available in a consumable format and in a timely manner. But because Madoff’s securities reports, Lehman’s financial filings, and Solyndra’s energy and securities disclosures were available only as disconnected documents, not open data, these insights would have required expensive, time-consuming, and purpose-built analytics projects. 

Most countries, including the United States, have not yet begun to apply open data to regulatory reporting. We will look at two prominent exceptions, the Netherlands and Australia, which have both embraced an approach known as Standard Business Reporting (SBR). SBR brings multiple government agencies together to define consistent data standards across their compliance requirements. In both the Netherlands and Australia, SBR reduces the manual labor of compliance, eliminates duplicated efforts of overlapping reporting requirements, and allows agencies to apply analytics.¹²

The Australian Tax Office estimated that Australia’s SBR program saved the government and companies $1.1 billion in compliance costs during the 2015-16 fiscal year.¹³

With Australia and the Netherlands showing the way forward, this paper defines SBR, surveys the histories and results of the Dutch and Australian SBR programs, and envisions how a U.S. SBR program might begin, grow, and succeed.

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