Substantive Compliance CostsThe term “regulatory costs” as used by the OECD embraces all of the costs attributable to the adoption of a regulatory requirement, whether direct or indirect in nature and whether borne by business, consumers, government and its respective authorities (i.e. taxpayers) or other groups. The figure below sets out a taxonomy of regulatory costs.

Purpose of GuidancePrinciple 4 in the OECD Recommendation of the Council on Regulatory Policy and Governance (OECD, 2012) recommends members of the OECD integrate Regulatory Impact Assessment (RIA) into the early stages of the policy process for the formulation of new regulatory proposals.

The OECD Guidance for Regulatory Compliance Costs Assessment aims to support countries in developing more effective systems for assessing the costs and benefits and economy-wide economic impacts of regulation and regulatory changes. The Guidance provides practical, technical and user-friendly guidance on measuring and reducing compliance costs of regulation in OECD countries. Compliance cost assessment is a significant element of Regulatory Impact Analysis (RIA), which is the broader analysis of all of the benefits and costs of a proposed regulatory initiative (or of existing regulations).

The particular focus of this guidance is on compliance costs. Moreover, given that a widely agreed methodological approach and extensive guidance material are already available on the issue of administrative burdens, this guidance does not discuss this subset of compliance costs. Rather, it focuses specifically on substantive compliance costs incurred by business or other regulatory target groups.

Taxonomy of regulatory costs

Regulatory costs

Compliance costs Financial costs Indirect costs Opportunity

costsMacro-

economic costs

Administrative burdens

Substantive compliance costs

Implementation costs

Direct labour costs

Equipment costs

Materials costs

External services costs

Wage costs

Non-wage labour costs

Administration & enforcement costs

Overhead costs

Conducting a Compliance Cost AssessmentProducing a Compliance Costs Assessment (CCA) is not a simple, sequential process. The diagram opposite outlines the major steps involved in carrying out a compliance cost assessment.

The arrows from Step 6 back to Step 5 highlight the fact that the initial results of CCA can and should be used to inform the policy process, supporting the refinement and improvement of the initially identified policy options and, in some cases, their supplementation with, or replacement by, entirely different options.

This is reiterative nature of this process is a fundamental element of Compliance Costs Assessments, as its ability to reduce regulatory costs and improve regulatory quality is crucially determined by the effectiveness of the feedback loop. Therefore, the initial cost estimates developed as part of CCA should be subjected to careful and critical scrutiny before proceeding to the next steps.

Contacts and Further InformationOECD Guidance for Regulatory Compliance Cost Assessment – Available from 30 April http://www.oecd-ilibrary.org/governance/oecd-regulatory-compliance-cost-assessment-guidance_9789264209657-en .

This Project is part of the Program of Measuring Progress in Regulatory Reform within the Regulatory Policy Division, and is under the auspices of the Regulatory Policy Committee.

www.oecd.org/governance/regulatory-policy/measuringregulatoryperformance.htm

For further information, please contact:Project Manager, Measuring Compliance Cost- Antonia Custance Baker (Antonia.Custancebaker@oecd.org) Program Coordinator, Measuring Regulatory Performance - Christiane Arndt (Christiane.Arndt@oecd.org;)

Flow chart of Compliance Cost Assessment