The cost of regulation is staggering. In 2023, the National Association of Manufacturers estimated the cost of U.S. federal government regulations at $3.079 trillion – a whopping 12% of U.S. GDP1. This isn’t an isolated American phenomenon; regulatory burdens are a global concern.
These costs stem from various sources: permitting, credentialing, reporting, and compliance. Businesses spend hundreds of billions on paperwork to demonstrate adherence to regulations. Beyond these direct costs, there are significant opportunity costs and lost profits due to the risks associated with non-compliance.
Our current system is not efficient for governments and costly for regulated industries. Economic growth of nations is directly affected by compliance costs, administrative burdens, barriers to innovation, and uncertainty. The high cost of regulation hurts economic development.
One simplistic approach to reducing these costs is deregulation: removing regulations entirely.
We can create government (and corporate) efficiency with an approach of “delete regulation, see if something breaks, and then figure out how to fix it”. This approach can work in the context of a single company. And while appealing in its simplicity, this approach is fraught with peril. It risks prioritizing short-term gains for a few well positioned companies over the long-term well-being of society. History has shown us that unchecked markets can lead to significant societal harm.
Regulations, when well-designed, serve a crucial purpose. The 1906 Pure Food and Drug Act in the U.S. is a prime example. This landmark legislation prevented dangerous practices like adding chalk to milk, sawdust to spices, and formaldehyde to canned food. Such regulations protect public health and safety, and are a necessary component of a healthy, functioning market economy.
The challengeis not whether to regulate, but how to regulate effectively and efficiently. We need regulations that achieve their intended goals without imposing undue costs on businesses and the economy. We need to fix the regulations that create unnecessary burdens. And, crucially, we need to drastically reduce the overall cost of regulation.
This is where Rules as Code (RaC) offers a promising path forward. RaC involves expressing regulations in a machine-readable format, allowing them to be executed and tested like software code. This approach has several key benefits:
- Improved Clarity and Consistency: RaC forces regulators to define rules precisely, reducing ambiguity and interpretation issues.
- Automated Compliance: Businesses can use RaC to automate compliance processes, reducing paperwork and administrative overhead.
- Reduced Costs: Automation and improved clarity translate to lower compliance costs for businesses and reduced enforcement costs for regulators.
- Better Regulatory Design: Regulators can use RaC to model the impact of proposed regulations before they are implemented, identifying potential unintended consequences and optimizing their effectiveness.
RaC is not a simple undertaking. It presents complex technical and organizational challenges. However, the potential benefits are substantial.
Xcential believes it is a problem worth solving.
By enabling regulators to model and test regulations before implementation, RaC can help us avoid the “Gordian Knot” of overly complex and burdensome rules. Unlike the reckless “cut and see what happens” approach, RaC offers a way to carefully and intelligently “untangle” the regulatory landscape, creating a more efficient and effective system for everyone.
RaC and also be stood up for a specific industry or even company. Regulated companies accept levels of risk today and this fuzziness creates opportunities to move forward without government action.
So what is Xcential doing?
Recognizing the immense potential of RaC, Xcential is actively developing solutions to address these challenges. Our technology already supports rules in structured, interoperable, and programmable formats. Our products support and rely on LegalDocML2 and USLM3. For rule-centric documents, we collectively have a standard way to handle data and information.
The next step is handling knowledge in such a way that becomes programmable. LegalRuleML4 is part of the answer. We are moving from bills, resolutions, amendments and statutes into regulation and rules.
Xcential’s technology and products provide a strong foundation for building practical RaC solutions.
We know there are two sides (regulatory bodies and regulated companies). We know there are dimensional problems with market adoption and liability. These include challenges related to establishing clear standards for RaC implementation, ensuring interoperability between different systems, critical mass, and addressing liability concerns in automated compliance processes.
Xcential experiments have begun and we believe it is time to act to make practical progress for several industries. We invite you to join us in exploring the future of regulation. Contact us to learn more about our RaC initiatives and how you can get involved.
- https://nam.org/wp-content/uploads/2023/11/NAM-3731-Crains-Study-R3-V2-FIN.pdf ↩︎
- https://groups.oasis-open.org/communities/tc-community-home2?CommunityKey=3425f20f-b704-4076-9fab-018dc7d3efbe ↩︎
- https://www.govinfo.gov/bulkdata/HMAN/resources/HMAN-XML_User-Guide-v1.pdf ↩︎
- https://groups.oasis-open.org/communities/tc-community-home2?CommunityKey=69771b68-7140-4936-8ca8-018dc7cf4f29https://groups.oasis-open.org/communities/tc-community-home2?CommunityKey=69771b68-7140-4936-8ca8-018dc7cf4f29 ↩︎
