EUROPEAN COMMISSION Brussels, 10.1.2017 SWD(2016) 463 final COMMISSION STAFF WORKING DOCUMENT



IMPACT ASSESSMENT

Accompanying the document Proposal for a Directive of the European Parliament and of the Council on a proportionality test before adoption of new regulation of professions {COM(2016) 822 final}

{SWD(2016) 462 final}



Table of Contents 1. Context 1.1. Policy context 1.2. Legal context 1.3. Economic context 2. Procedural aspects and consultation of interested parties 3. Problem definition – Fragmentation of the Single Market resulting from disproportionate regulation 3.1. Experience from the Mutual Evaluation 3.2. Insufficient 'quality' proportionality assessments 3.3. Conclusions from this analysis 3.4. The drivers of the problem 3.5. Who is affected, in what ways and to what extent? 3.6. How would the problem evolve, all things being equal? 4. EU right to act and subsidiarity 5. Consistency with other EU policies and with the Charter for fundamental rights 6. Objectives 6.1. General policy objectives 6.2. Specific policy objectives

7. Policy options 7.1. Baseline scenario: no new action 7.2. Policy option 1: Guidance approach 7.3. Policy option 2: EU proportionality test for regulated professions – common set of criteria 7.3.1. Option 2a Legally binding instrument (Directive) 7.3.2. Option 2b Non-binding instrument (Recommendation) 7.4. Policy option 3: Comprehensive modifications of the existing system 7.4.1. Option 3a Legally binding instrument (Directive) 7.4.2. Option 3b Non-binding instrument (Recommendation) 8. Analysis of impacts 8.1. Baseline scenario 8.2. Policy option 1: Guidance approach 8.3. Policy option 2: EU proportionality test for regulated professions 8.3.1. Policy option 2a EU proportionality test for regulated professions (legislative) 8.3.2. Policy option 2b EU proportionality test for regulated professions (Recommendation) 8.4. Policy option 3: Comprehensive modification of the existing system 8.4.1. Policy option 3a Comprehensive modification of the existing system (legislative) 8.4.2. Policy option 3b Comprehensive modification of the existing system (Recommendation) 9. Comparison of options 9.1. Comparison in terms of effectiveness, efficiency and coherence

9.2. Preferred option / Justification for no preferred option 9.3. Subsidiarity and proportionality of the preferred option 10. Monitoring and evaluation 11. Annexes 11.1. Annex 1: Procedural information 11.2. Annex 2: Stakeholder consultation 11.2.1. Methodology 11.2.2. Demographics 11.2.3. Quality and Proportionality in National Action Plans (NAPs) 11.2.4. General Awareness of Proportionality 11.2.5. Responses regarding the current state of proportionality assessments in the EU 11.2.6. Public Authorities 11.3. Annex 3 Single Market Strategy 'Guidance Initiative' 11.4. Annex 4: Analytical models used in preparing the IA 11.5. Annex 5 Forms of Regulatory Intensity 11.6. Annex 6 Article 59 of Directice 2005/36/EC



1.Context The Commission's priority is "to put policies that create growth and jobs at the centre of the policy agenda".

Unnecessary regulation places unjustified burdens upon European economies. Removing such barriers opens up opportunities and has a positive impact on the productivity and competitiveness of the EU economy. It is for this reason that the following impact assessment proposes the implementation of systematic proportionality tests in the regulation of professions, so as to ensure the better development of regulation through objective ex-ante analysis and transparency; resist the introduction of unnecessary measures; identify instances of disproportionate professional regulation; guard against inflicting economic constraints on national administrations and the Single Market in Services; enable Member States to fully comply with their implementation of EU law and proportionality in the most straight forward and transparent manner. 1.1.Policy context The regulation of professional service providers is a fundamental European issue insofar as it relates firstly the freedom of movement, as it relates to people as well as services, and secondly as a central pillar of the European Single Market. Professionals and their activities are regulated by Member States at national, regional or sometimes local level. Sometimes regulation is devolved to professional authorities outside of central government. In order to facilitate the movement of professionals between Member States Directive 2005/36/EC on the recognition of professional qualifications defines the way through which professional qualifications are recognised between Member States so that services may be provided across borders. Despite this, great disparities lie between the Member States in how they choose to regulate a profession. Those wishing to provide their services may find themselves either unable to or forced to undergo costly and time consuming procedures before gaining access. In 2013 the Directive was amended by Directive 2013/55/EU with the view to simplifying the rules organising the recognition of professional qualifications. It also introduced a transparency and Mutual Evaluation exercise between the Member States of their regulated professions (Article 59 – Annex 6). This exercise culminated in a requirement for Member States to submit 'National Action Plans' by 18th January 2016 outlining and justifying any decisions taken as a result of this analysis to maintain or amend professional regulations. To help Member States deliver their obligations as described above and during the mutual evaluation, the Commission developed a questionnaire to guide their assessments, based on the existing case-law of the Court of Justice. Alongside this, a group of Member States also proposed, in February 2015, a framework for a methodology for considering regulation of professions, supported by case studies of different regulatory approaches taken by participating Member States . However, having now finalised the initial two year Mutual Evaluation, it is clear that conducting such an assessment presented a challenge to many Member States. Such assessments are a basic tenet of good policy making and that so many assessments lacked proper reasoning suggests an underlying problem concerning how the need for regulation and its effects on the broader business environment is evaluated. Fundamentally, the Mutual Evaluation process revealed a scarcity of evidence to suggest that regulatory decisions are currently being based on sound and objective analysis or in an open and transparent manner. This presents an obstacle to the shared objective of improving the regulatory landscape and by extension for the ramifications it has on Member States' ability to appropriately comply with the Professional Qualifications Directive. More fundamentally, no action on the issues set out in this Impact Assessment would be a wasted opportunity to address substantial barriers to delivering on the Single Market's full potential. From reviewing the information gathered during the Mutual Evaluation it became clear that the regulation of even similar professions varies substantially between Member States and in interrogating many of these instances it was found that such differences could not be objectively explained; thus casting doubt upon their underlying utility. The issue of proportionality and what the Commission may do to encourage comprehensive proportionality assessments is one that the European Council and Parliament return to repeatedly. In this context, the Commission's Single Market Strategy (SMS) for goods and services of 28th October 2015, announced actions to improve the national regulation of professions, namely the introduction of an analytical framework for proportionality analysis (“proportionality test”) precisely in order to assist Member States in targeting instances of disproportionate and unnecessary regulation: The Commission will also set out an analytical framework for Member States to use when reviewing existing professional regulations or proposing new ones. This framework will contain a methodology for comprehensive proportionality assessments of professional regulations. Member States will need to demonstrate that public interest objectives cannot be achieved through means other than limiting access to, or conduct in, the professional activities in question. Alongside this, guidance on specific reform needs per country and per profession (“guidance for reforms”) was also proposed [annex 3]. These actions constitute the initiatives to be presented by the Commission on the basis of Article 59(9) (see annex 6) of the Professional Qualifications Directive, the first being the subject of this paper. The two initiatives were endorsed by the European Parliament and Council in 2016. In its conclusions of 29th February 2016 the Council again emphasised the need for more consistent proportionality assessments of regulatory requirements regarding professions and welcomed country specific guidance on regulated professions. Further, this proposal runs complimentary to that proposed under the Services Directive to notify draft regulatory changes in the context of the scope of that Directive. A more systematic use of proportionality criteria is expected to enrich the shared policy objectives to improve the Single Market in services for both Directives. In terms of scope the Services Directive relates to only legal persons and does not cover the medical professions. The Professional Qualifications Directive refers to the recognition of all individuals who by legislation must be qualified except notaries. 1.2.Legal context Prior to its substantial revision in 2013, Directive 2005/36/EC was the subject of a thorough evaluation on the shortcomings of the existing process for facilitating the free movement of professionals. Based on those findings, Directive 2013/55/EU, amending Directive 2005/36/EC introduced, among other requirements, an obligation for Member States to assess the proportionality of their professional regulations. This recalls according to responsibilities under the Treaty (Articles 45, 49 and 56 TFEU) that regulation in the Member States must be necessary, justified and not go beyond what is necessary. This assessment process, carried out by the Member States included all regulated professions, within the scope of the Professional Qualifications Directive and therefore is not applicable to activities which are explicitly excluded (e.g. notaries).

Currently, Article 59 of the Professional Qualifications Directive describes the process which Member States must comply with: Article 59(3) lays down a general obligation for Member States to examine whether requirements restricting access to a profession or its pursuit are justified and proportionate. In particular, it requires without further detail an examination of whether those requirements are "suitable for securing the attainment of the objective pursued" and do not "go beyond what is necessary to attain that objective". It does not explicitly provide an obligation for Member States to eliminate immediately any disproportionate regulation and thus might create legal uncertainty as to whether one is to use Article 59 to preserve its practical effectiveness or the Treaty. By 18 January 2016 Member States must have examined whether requirements restricting access to a profession or its pursuit are justified and proportionate -Article 59(5). This requirement resulted in the so-called Mutual Evaluation process. Within six months of the their adoption, the Member States have to notify to the Commission the new requirements which have been introduced after 18 January 2016, together with the reasons for considering that those requirements comply with the principle of proportionality Article 59(5). By 18 January 2016 and every two years Member States have to notify to the Commission those requirements which have been removed or made less stringent - Article 59(6). These reports take the form of National Action Plans, based on in-depth, case-by-case analysis of the restrictions and listing the reforms which have been carried out or are foreseen in the future. On the basis of the information received, pursuant to Article 59(9), by January 2017 the Commission is expected to submit its final findings on the overview of national regulations of professions and on proportionality assessments conducted by Member States to the European Parliament and the Council, accompanied where appropriate by proposals for further initiatives. Thus, it was foreseen during the revision of the Professional Qualifications Directive in 2013 that new initiatives concerning the proportionality assessments conducted by Member States would have to be submitted by 2017. Furthermore, the present initiative will be reinforced by the related Guidance initiative on reform needs [see annex 3]. The two measures can be considered as complimentary in the sense that the present acts pre-emptively through providing a general set of criteria assisting Member States in a thorough ex-ante assessment of justification and need for future regulation of professions in all sectors, while the Guidance aims at prompting Member States to make concrete adaptations to the regulatory framework of specific professions. They both aim at refining Member States' approaches to regulation, not dictating them, but rather by ensuring better regulatory practices guarantee that the requirement for proportionality and necessity of regulation is adhered to and that negative economic consequences avoided. 1.3.Economic context A better functioning of the Single Market gives European Member States advantages at the national as well as global level. Total services account for 71% of GDP, representing € 8,58 bn and 68% of total employment, the equivalent of 152,6 million persons. However, it is broadly acknowledged that more than 20 years after its creation the full potential of a single market in services remains unfulfilled. The significant role of professional services in the EU economy cannot be over-estimated and there are numerous studies demonstrating the untapped benefits to furthering the Single Market in services. One such recent study suggested that an annual potential of €39billion GDP remains to be captured. At present, based on what Member States notified in the regulated professions database, there are over 5500 regulated professions across the EU. This corresponds to an average of 199 regulated professions per Member State but with such large variances between countries that we see a range from the least, Lithuania reporting only 76, and Hungary with the most at 543. However, these numbers in tell little about the intensity (or proportionality) of the regulation, its economic impact or the characteristics of people affected by it [see annex 2]. Nevertheless as a starting point to the present analysis it does serve to illustrate the scale of divergence in the European Single Market for services. Measuring the precise impact of regulated professions is difficult owing to the lack of such type of occupations in any EU or international statistical classifications and until recently no figures even existed regarding the prevalence and effects of occupational regulation on the EU labour market. Therefore, to support the Mutual Evaluation the Commission contracted the first ever EU-wide representative survey to provide the data necessary to measure the prevalence of regulated professions. Conducted during the first quarter of 2015 this survey contacted over 26,600 European citizens and concluded that 22% of the European labour force, or over 47 million citizens are directly affected by the most stringent form of 'licensing' regulation. It also found that its prevalence varies across the Union (from 14% in Denmark to 33% in Germany ). Further to this an independent academic study was subsequently commissioned to analyse the impact on the labour market using this newly available data. This study provides us for the first time ever with estimations based on a single methodology of the impact professional regulation has on labour market for the whole EU. The results are summarised in table 1. Table 1 The impact of regulated profession on labour market: Impact Finding Detail Wages An aggregate wage premium of about 4% but with considerable variations (up to 19.2% in some crafts) This is reflected in significant differences in wages across professional groups and suggest that licensing may significantly distort relative wages. Also suggests that professional regulation contributes to wage inequality in the European labour market, particularly benefiting those at the top of the income distribution. Job creation Suggest that licensing can be associated with a substantial loss in employment (up to 705,000 jobs in the EU). Depending on the occupation, there could be between 3 and 9% more people working in a given profession should access requirements be made less stringent. Mobility 26% less foreign-born workers in regulated occupations compared to unregulated ones. Amongst EU citizens in another Member State almost 1/3 fewer work in regulated compared to unregulated professions. The study also found evidence that automatic recognition arrangements under PQD are effective in facilitating mobility. Skills “upskilling effect” of occupational regulation – was not confirmed Certified workers who have no obligation to invest in training do so more than those who do (licensed workers), indicating that licensing is not the only way to promote upskilling. Consumer information Commonly used justification is the asymmetry of information between professionals and consumers. Although caveated, the study rejected this explanation for the incidence of licensing in the EU.] The perceived lack of information on behalf of the consumer is often given as the reason for requiring professional regulation so as to control the quality of service provided. Source: “Measuring Prevalence and Labour Market impacts of Occupational Regulation in the EU” Corresponding with this, studies on the impact of regulated professions in specific sectors have been carried out recently in several Member States. For instance, the French Inspection Générale des Finances conducted its own study in which it analysed 37 regulated professions chosen on the basis of their economic significance and on their subjection to at least two different forms of regulation. The study analysed the regulations in place, the reserves of activities, the qualifications and the tariffs, and on that basis found the following: Removing excessive regulations for these professions could increase French GDP by 0.5%, employment by 120,000 and exports by 0.25% of GDP

That these sectors have profit margins 2.4 times higher than those seen in the rest of the economy In the majority of cases it isn’t possible to argue that the regulations are aimed at promoting principles of general public interest or the economic efficiency that inspired them That the regulated professions under examination are characterized by high levels of profitability which has no other explanation than the regulations in place. In 2016, the Competition and Markets Authority in the UK launched a market study into legal services in England and Wales to see if they were working well for consumers and small businesses. The interim report, published in July 2016 considered in particular the potential for regulation to adversely affect competition in several ways, namely by creating unnecessary and disproportionate costs for consumers and by creating barriers to entry, expansion or innovation. When analysing whether regulation and regulatory framework go beyond what is necessary to protect consumers, the analysis focused on the impact of "reserved activities and on the impact of "regulation by the title", but also on the impact of the overall framework for legal services regulation on competition. The interim report highlighted in particular that the reservation of activities may reduce competition to some extent. Consequently, reducing their scope could have the potential for generating greater competition in the future. The economic impact of the liberalisation of the profession of real estate agent has been assessed in the Netherlands. In the framework of the Mutual Evaluation, the Netherlands stressed that after liberalising the profession, market entry of new agents became easier. In 2010, the amount of real estate agencies in the Netherlands was 12.339, compared to 7.931 in 2000. Also, after 2005, commission rates went down, which could be seen as a result of increasing competition. Recognition of the consequences of inappropriate professional regulation may also be found in the context of the European Semester: since 2011 an average of 11 countries per year has received recommendations on professional services, including the regulated professions. The economic value brought about through opening up access to services is further acknowledged as a priority in the economic reforms necessary to support regeneration for some of Europe's most economically challenged Member States Further, a number of studies recently contracted by the Commission show that making regulation more proportionate and adapted to market reality by e.g. relaxing the most restrictive and unjustified requirements resulted in improved market dynamics specifically leading to more market openings, more start-ups and new innovative services brought to market by new entrants. Other recent studies further enforce findings that excessive occupational regulation has negative and multi-layered impacts on the economy, leading as it does to: A distortion of competition by keeping unnecessarily high entry barriers for newcomers, therefore limiting the number of people and businesses authorised to provide services. A greater number of suppliers may increase levels of innovation via stronger competition. Reduced competition can lead to a suboptimal allocation of resources and excessive price mark-ups, which can be translated into higher prices of services for consumers. The organisation of entry requirements to access a profession according to transparent and objective criteria may increase significantly the number of professionals, without undermining the quality of the service. Disproportionate barriers can act as a deterrent to innovation by preventing new service providers with innovative solutions to compete with market incumbents. Excessive entry regulation may also unnecessarily reduce employment opportunities for professionals. Because of their fundamental part in value chains as users of other sectors' inputs and in turn as contributors to the production process of other sectors, their economic role is even greater than its face value. For example, €1 of final demand for architectural and engineering services generates €1.9 of gross production in the whole economy. This highlights the pan-economic impact of regulation in professional services and one study found the positive effect of previous structural reforms in German business services "on the net value added in the downstream manufacturing production as well as in the overall economy" Another paper makes the link with innovation and knowledge spill-overs but also with Foreign Direct Investment (FDI), noting the significant proportion of FDI which goes to the services sector and that 'domestic reforms are crucial in contributing to attract FDI': At macroeconomic level this all adds up to a restraint on economic growth and the loss of employment opportunities not only for the Member State directly concerned but also for the internal market as a whole because of the interrelationships between neighbouring economies whose exports depend on the accessibility of their neighbours’ markets. Because of their predominance in key sectors (business services, construction, health and social services, etc.), the regulated professions contribute significantly to the rest of the economy and are needed for economic growth and employment. It has therefore a substantial impact on Europe’s competitiveness as a whole and in this context such issues need to be tackled at a European level. 2.Procedural aspects and consultation of interested parties The evidence base for this impact assessment stems from the on-going Mutual Evaluation exercise undertaken in the last two years, the information provided by national competent authorities in the Regulated Professions Database and the various reports on specific sectors, drafted in agreement with the Member States and published by the Commission. Additionally a public consultation was carried out between 27th May and 22nd August 2016. A total 420 responses were received. A fuller extrapolation of results may be found in annex 11.2. Summarised here are the higher level conclusions which may be drawn as they relate firstly to the problem drivers as set out in this Impact Assessment and secondly a review of responses regarding the introduction of a common proportionality test. In summary: Regarding the quality of analysis found in National Action Plans (NAPs) [11.2.3 of annex]: When controlled for the organised views of interests around 37% found that NAPs were based upon the most relevant information on the impact of regulation on the market and/or professionals (e.g empirical studies, reports by professional associations and consumer protection bodies, reports and/or opinions of other national authorities such as competition authorities) and around 35% that 'all impacts of regulation were thoroughly analysed'. [section 11.5 of annex]

Regarding current regulatory checks and balances already in place [section 11.6 of annex]: When asked what proportionality related assessing was already in place in their Member State: around 38 % said there was a systematic methodology, 38% that is was done on a case by case basis and 24% that no methodology exists. Regarding existing criteria according to EU law 39% were unaware of any, of these were 43% of those who responded as a 'public authority' Transparency issues were addressed in relation to consultation practices: in the region of 61% focussed consultations only on the professions concerned and the publication of the results of any analysis is not done in many cases. Regarding the introduction of a proportionality test[section 11.7 of annex]: Around 93% of respondents agreed that authorities should analyse the impact of the professional regulations they introduce. 56% that proportionality should be analysed with a set of common minimum criteria to assess the impact of regulation so that the most relevant factors are considered by all regulators. Of the 61% aware of current proportionality analysing procedures, 45% thought it needed no further clarification but this number drops to 26% when controlled for organised responses. Top concerns with current procedures reflected those in this IA, namely: quality, compliance, comparability and transparency according to the best principles of proportionality in regulation. Respondents agree that issues around wider economic impact and cumulative regulatory effects should be part of such a test. [section 11.6.2 of annex] The rate of regulatory change is high within the professions with around 50% of respondents wishing for more [section 11.2.6 of annex] Aside from a general concurrence, those most reluctant to support any change to the ways through which proportionality is analysed or to acknowledge the benefits it may deliver, come largely from within the professional representative bodies. Almost exclusively the German and Austrian crafts have particularly strong reservations which are reflected by a coordinated response to the consultation accounting for nearly 100 responses refuting the alteration to current proportionality approaches. Across Member States, attitudes towards an improved used of proportionality are: Those who replied yes to the above were then asked:

Looking at these responses according to stakeholder demographics we find: Should there be common guidance? Should this guidance be mandatory? Public Authorities Yes 30 24 No 15 6 Users Yes 85 5 No 1 - Providers Yes 75 64 No 29 5 Other (bracketed figures denote removal of organised responses) Yes 64 (53) 46 No 93 ( 23) 15 3.Problem definition – Fragmentation of the Single Market resulting from disproportionate regulation The regulation of professions by definition does and means to create barriers. Such barriers may be necessary to guard against justifiable risks. The reasons for introducing regulation are often to protect the consumer of the service, the public in general or related to environmental concerns. Obvious examples are health professions where the potential for risk is high and the quality of practitioners must be guaranteed as far as is possible. However, proportionality in regulation is not an intangible abstraction but may be objectively interrogated according to the benefits a regulation brings to guard against such risks alongside its impacts upon the broader market. In this way informed judgements may be taken as to the desirability of any trade-offs to the competitive environment. In view of their important social and economic effects, such assumptions and choices must rest on solid evaluations. Where for whatever reason, failing to ask and properly investigate the fundamental questions underlying such decisions are lacking, the negative consequences of disproportionate and unnecessary regulation are likely to follow. Yet the disparity observed in ensuring proportionality in regulation indicates fundamental challenges at a Member State level to properly grasp and respond to issues around proportionality. Ultimately this results in regulatory decisions which may be considered disproportionate or even entirely unnecessary. Over the European Union more than 5500 regulated professions were notified to the Commission, 40% in the health and social services sector and 3% regulated by no more than two Member States. The most striking immediate observation was in the area of civil engineering where the subdivision of categories, largely related to the scope of activities reserved to qualified professionals (i.e. those activities which can only be performed by qualified professionals) uncovered over 90 different classes of civil engineer. For example, it is revealing to consider that there are regulations, adopted decades ago, which are not even applied in practice, but remain in force and thus have the potential to create barriers and may jeopardise legal certainty. Where regulations may have been designed decades previously, new technological developments have been taken into account only by a limited number of Member States when regarding the regulations currently in effect. Additionally, even within a Member State, the approach as regards proportionality assessments may vary significantly and one can find regional differences not only regarding which professions to regulate but also which, and how many, measures to apply. For instance in Spain, whereas the profession of real estate agent has been liberalised at national level, the possibility to reintroduce regulation has been foreseen and already implemented at regional level in at least one region. However, according to the information submitted during the Mutual Evaluation, there has been no impact assessment of the different regimes in the different regions, nor has been a similar enquiry into the regulation of estate agents as a causal factor in property speculation. As an extensive and retrospective exercise, often subject to the will of strong interests as well as a certain endowment bias, the Mutual Evaluation has not been able to deliver the meaningful reform that was expected. Whilst the Directive requires Member States to apply proportionality when making assessments it does not address how specifically these proportionality assessments are to be made and, as shown through experience of the Mutual Evaluation, this lack of clarity is likely to hinder the Member States' ability to implement the Directive. Issues of proportionality and in particular the intensity and evidence-base of the assessment are to be found in case-law but in such a fragmented way that it hinders practitioners' ability to act with clarity. Case-law by its nature applies to specific cases and extracting the general principles in the appropriate level of detail may not always be straightforward. As such this may present difficulties for Member States. Certain professional activities (for instance notaries) have not been subject to an in-depth review due to fact that they were explicitly excluded from the scope of the Professional Qualifications Directive and thus did not benefit from the Mutual Evaluation exercise. However, in line with the Treaty, it has to be ensured that the proportionality principle is applied in a consistent way to all sectors of activity, while duly taking into account the specificity of the specific profession under scrutiny and the competency of the Member State to regulate according to these principles. In view of the striking divergence in the regulation of similar professions across Member States, the variety of approaches and apparent confusion in assessing the value of regulations, the objective of the obligation to assess the proportionality of national regulations under the Professional Qualifications Directive and the Mutual Evaluation has not been reached and it currently does not fulfil its role as negotiations intended. The results of the Mutual Evaluation exercise show that Member States do not provide sufficient arguments, if any, as to the proportionality of their professional regulations and the consultation indicated a disparate and disorganised approach to regulatory assessments. The existing obligations clearly do not prevent the adoption of disproportionate requirements. 3.1.Experience from the Mutual Evaluation For the purposes of the Mutual Evaluation the Commission developed a questionnaire according to existing case-law to help Member States review their regulation from the point of view of proportionality. This process informed the proposal set out in this Impact Assessment; in so much as it legally required Member States to undergo proportionality focussed assessments for each of their regulated professions. As such, an appraisal of its success and any underlying problems encountered is a particularly relevant source of information for this Impact Assessment. Table 1 illustrates the state of play in June 2016 regarding the proportionality assessments and National Action Plans submitted by Member States. The deadline for submission of this information was 18 January 2016. Table 2 – Proportionality assessments carried out by EU Member States, June 2016 Proportionality

assessments submitted [by 9.6.2016] % of proportionality assessments missing Total number of professions reported regulated by that Member State National Action Plan submitted (NAP) AT 102 52% 213 Yes BE 88 31% 128 Yes BG 99 10% 110 Yes CY 17 85% 114 No CZ 366 0% 366 Yes DK 160 1% 162 Yes EE 84 14% 98 Yes FI 140 0% 140 Yes FR 234 10% 260 Yes DE 112 26% 151 Yes EL 1 99% 153 No HR 19 93% 275 Yes HU 301 53% 634 No IE 28 81% 149 No IT 170 5% 179 Yes LV 267 0% 267 No LT 76 0% 76 Yes LU 2 98% 125 Yes MT 2 99% 140 No NL 98 27% 135 Yes PL 345 1% 347 Yes PT 63 74% 239 Yes RO 119 40% 200 Yes SK 252 16% 299 Yes SI 28 90% 287 No ES 103 46% 192 No SE 87 10% 97 Yes UK 170 24% 224 Yes EU 3533 39% 5760 20/28



Source: EU Database on regulated professions, extraction on 9.6.2016 As this table shows, overall around 39% of proportionality assessments are yet to be submitted. However, as detailed further below, it should be clearly understood that the presence of submitted information says nothing regarding the intrinsic 'value' of that information to the issues at hand. Indeed, in many instances the information presented was insufficient, analysis often relied upon assumption rather than evidence and too often conclusions were drawn despite an absence of robust examination. 3.2.Insufficient 'quality' proportionality assessments The principles which should be followed to ensure that any national requirements imposed on service providers are proportionate have been defined in EU law as follows: "requirements must be suitable for securing the attainment of the objective pursued; they must not go beyond what is necessary to attain that objective and it must not be possible to replace those requirements with other, less restrictive measures which attain the same result." Consequently the European Commission developed a questionnaire requesting that Member States answer a number of questions including: the identification of the public interest objectives which the measure(s) in question are meant to fulfil; specific risks (or benefits) the measures in question were designed to tackle; how the measures in question operate, in aggregate where multiple measures are put in place, to meeting their objectives; whether the actual effects of the measures have been assessed and finally; whether any amending decisions were being taken as a result of this analysis, notably maintain, improve or remove existing requirements. This impact assessment covers analysis of the around 3500 proportionality analysis responses received by 9th July 2016 of the 5700 professions notified. Crucially, so as to establish an objective starting point, this analysis was based upon the relevance of the responses given to questions instead of a judgement upon the value (quality) of the assessment in and of itself. Therefore, rather than taking a position upon the veracity of the proportionality case presented, the analysis sought to establish the relevance of the information given for each response in a disinterested way and independent from the particular profession under scrutiny. As such it is important to note that the following should not be construed as judgement by the Commission on the conclusions reached by Member States (maintain, improve or remove the measure), but rather as an evaluation of the pertinence in which issues were considered. And as a consequence there are many instances where the regulation is place could be entirely justified but insufficiently reasoned or indeed the converse. Thus, the analysis is based on a four step analysis of the proportionality assessments submitted by Member States to ascertain their appropriateness as a response to the questions posed [annex 1]. 3.3.Conclusions from this analysis The conclusions are based on the instances where a specific risk or benefit was indicated as the motivation behind regulation rather than more generalised considerations such quality of services, consumer protection or general consumer safety without indicating any specific risks. The analysis of the question on how specifically a given measure was supposed to tackle these risks reveals that in around 61% (within the ca. 3500 analysed) could the responses be considered as adequate. Box 1. Some examples of inadequate risk identification by Member States: - To increase business reliability (clothes launderer) - Public policy (real estate agents) - The protection of creditors (hairdressers) - The potential for knives to cut (cooks)

- To create a fair and controlled market (information system engineer) - To promote the attractiveness of activity (boat master) - To cut the risk of fraud or counterfeiting (interior designer) - To guard against the dissemination of inaccurate information or to ensure security of trade activities and in particular of loyal transactions, (for regulating tourist guides) - Risk of wrist injury / small explosions (watch maker) Analysing responses to the question on effects (Q5), reveals that the functioning of existing measures are being considered only in very few cases and even in these cases, the analysis is rather anecdotal than based on objective studies. In around 84% of cases, the effects of the measures were not analysed at all. Box 2. Some examples of inadequate identification of effects of regulation by Member States: - The measures are preventative therefore difficult to measure (Private detective) -Has been regulated since 1968 and road safety records have improved since that time (driving instructor) - No penalties have yet been imposed/recorded (multiple instances by the same Member State) - Is regulated at EU level, therefore proportionality is not applicable (lawyer) - Not applicable (accountant)* - No relevant information on the effects of measures, however the goal is to prevent unauthorised practice (multiple instances by the same Member State) - Gives the holder a competitive advantage (mechanical engineers) * one Member State responded n/a in around 140 instances, another in over half of the few assessments they supplied The third step, regarding the cumulative effect of multiple measures, found that in the region of 10% made no analysis where such additional restrictions were in place. This is even aside from consideration of broader measures in place such as consumer or health and safety law which could be considered additional protections in almost all instances. Finally, as a conclusion to this analysis regarding the conclusions reached by Member States from their preceding analysis, in at least 69% of cases where the stated intention to “maintain the current system” were neither the risks that the measures were supposed to minimise identified, nor the effects of the measures analysed. This illustrates the frequency of regulatory decisions being made upon a paucity of adequately conducted proportionality assessments. Another sign that proper analysis is not being routinely pursued by administrations refers to the amount of instances where recent reforms were made without the seeming ability to present the supporting information for these decisions. For instance, in January 2016 Bulgaria introduced regulations concerning the professions of tourist guide and travel agent. Despite the level of restrictiveness of the new rules as regards the scope of the reserved activities or the training requirements, a proportionality analysis of the measures before their adoption does not seem to have been carried out. Similarly, Italy has introduced new requirements for lawyers, which also do not appear to have been analysed according to proportionality principles prior to their adoption and which have not been substantiated by further justification. Furthermore, whereas in 2015 France conducted major reforms in several legal professions, very limited changes were introduced to improve access to ministerial offices, attributed to lawyers acting before the highest courts, as evidenced by the results of the public consultation carried out by the Commission. The fundamental and very real concern suggested by this analysis is that Member States are all too often basing far-reaching policy conclusions and implementing new regulations based upon inadequate arguments and without due diligence to the social and economic risks of such decisions. This lack of assiduousness risks not only unnecessary, detrimental and costly over regulation but also, in not fully appreciating the operation of a regulation on its objectives, to inadequate protections where the public interest ought to rightly be guaranteed. 3.4.The drivers of the problem

Multiple drivers may be put forward each operating to lesser or greater degree within a particular Member State but which overall negatively contribute to a collectively divergent approach to the overall regulation of professional services in the Single Market, according to a highly individualised and generally insufficient use of proportionality. Before outlining these it is also necessary to consider the possibility of other factors that may have influenced our findings above. For example, it may be that some Member States encountered resourcing issues yet even so they still encountered difficulties in relatively fundamental areas, such as identifying those risks necessitating regulatory protection and where data gathering is not required; responses were too often lacking credibility or relevance. Although allocated over two years for the completion of this task some have still failed to deliver and additionally we are aware of instances where Member States encountered opposition from their competent authorities to supply the necessary information. This has not however prevented new regulatory decisions from being taken over this same time period. Additionally, one of the motivations behind the Mutual Evaluation exercise was to ensure that old regulations are screened against contemporary needs. In such cases where a regulation was adopted decades previously it may be that analysis at that time was rudimentary or that much of it has since been lost and as such could not be submitted for this exercise. Similar to the above however, this has not prevented new measures from being introduced or announced during the course of the Mutual Evaluation and without any concomitant reasoning or reflection in the responses submitted. Understanding this, the present Impact Assessment has identified four primary underlying drivers behind the issue of Member States failing to properly conduct proportionality analysis and thereby guarantee against the negative effects or redundant and undesirable regulations: Driver 1: Lack of clarity as regards the criteria required to comply with the principle of proportionality The necessary criteria required to comply with the legal requirement to examine proportionality are not clearly established in Article 59 of the Professional Qualifications Directive, making assessment and prevention of disproportionate regulation difficult to moderate. Currently, Article 59 (3) contains only a general obligation for Member States to examine whether national requirements are "suitable for securing the attainment of the objective pursued" and do not "go beyond what is necessary to attain that objective". The criteria to conduct a proportionality test are scattered in the case-law, since each case dealt with by the Court of Justice is specific in its factual and legal assessment of specific requirements. Member States have pre-existing obligations to perform proportionality checks under the Professional Qualifications Directive and the Treaty and going forward will be expected to notify changes to their regulatory environment according to proportionality principle. However, despite criteria already existing in the case-law of the Court of Justice, the fulfilment of existing obligations is often based on national methodologies leading to a great deal of discrepancy and the inability to make workable comparisons. As the case law is dispersed, it is neither clear which criteria are the minimum and sufficient for a proportionality assessment to be deemed satisfactory and compliant nor how to most appropriately frame such responses. Such ambiguity breeds uncertainty, groundless diversity, does not promote capacity building across the Union, risks the adoption of unsound decisions based on unsound evaluations and ultimately risks proper implementation according to the objectives underlying the Directive. The prevalence of this issue was borne out by responses in the Public Consultation (see section 11.6 of Annex 2). Driver 2: An absence of preventive structured assessments to avoid adoption of disproportionate measures at all levels of regulation Existing obligations are not going far enough to promote best practice and thereby are not preventing the adoption of requirements out of line with the principle of proportionality, as demonstrated by the new regulations introduced in some Member States. Since the case-law on proportionality in professional regulation is not codified and more importantly, neither the case-law nor Article 59 of the Professional Qualifications Directive contain a clear obligation for Member States to carry out a detailed and structured ex-ante proportionality check. The results of the consultation and Commission observations, as described above in regard to the Mutual Evaluation, demonstrate the lack of such a structured approach. Even Member States which have already made significant efforts to comply with the existing requirements are still seeking to improve their assessment processes. In any event, the way these assessments might be done and in how far they reflect faithfully and coherently the aspects developed in the case law, differ widely, making any comparison impossible. Thus, there is a risk that regulation is adopted without a prior proportionality assessment and the reasons justifying it are simply routinely drafted and communicated to the Commission during the six-month period after the adoption. Furthermore, although Member States have to comply with the principle of proportionality at all levels of regulation (even on regional or local level), it appears that the proportionality check is not always performed concerning secondary legislation. Driver 3: Limited possibilities to identify and challenge disproportionate regulation EU citizens exercising their free movement rights and looking for a job are often requested to fulfil several categories of requirements, which may be seen as excessive, especially when they tend to safeguard inadequately the same public interest objective. There are number of instances where there is lack of correspondence between the qualifications required (in particular the nature, the level and the duration) and the nature of the tasks performed. National regulatory systems do not always reflect current market realities and thus impede market access for pro-competitive innovations (such as on-line provision of professional services). In all these situations, EU citizens are faced with various practical difficulties, requested to undergo additional administrative formalities and to spend time and money to fulfil all the requirements, which might well go beyond what is necessary to practice the tasks, relevant for each regulated profession. Whereas the Commission receives complaints concerning disproportionate regulation, based on Article 59 of the Professional Qualifications Directive, often it does not have the necessary information at its disposal to be able to initiate infringement proceedings and therefore can act only in cases where it identifies clearly disproportionate and excessive requirements. The difficulty to assess proportionality of a measure lies in the fact that regulation has to be assessed in its national context against the backdrop of the regulatory system in that particular Member State or subdivision of it and the societal environment. Such information is not in the hands of the Commission but rather the national authorities and should be adequately considered by them in assessing proportionality. The lack of structured and comparable ex-ante assessments will often mean that neither the Commission nor citizens can get the necessary information to assess thoroughly and if appropriate challenge the proportionality of the regulation. While in most cases national jurisdictions are better placed to determine the proportionality of the regulation, the continued absence of an EU instrument defining the criteria to be taken into account makes this analysis challenging. The current system, designed by article 59 of the Professional Qualifications Directive does not foresee the possibility for professionals, consumers or even other Member States to access the notifications on any newly adopted measures, including information on the proportionality of such measures or to express their views. To conclude, the lack of adequate expectations around issues of proportionality, as well as transparency on what grounds such decisions are taken, renders the possibility for successfully challenging instances of disproportionality at national or European level highly unlikely. Driver 4: The limited number of impartial, objective and comprehensive proportionality assessments in all sectors of activities, taking into account the interests of all interested parties, including consumers It may be clearly seen from the Mutual Evaluation that Member States often deputized the completion of necessary information to their competent authorities. As intimated by the Mutual Evaluation and then more strongly suggested by the results from the public consultation Member States often fall short in their duty to guarantee the quality, transparency and outcomes of their regulatory choices. Often, the reason given for this lack or their delays in communicating their proportionality analysis has been the reluctance of professional bodies to submit the requested information, whereas the responsibility to comply with the requirements of the Professional Qualifications Directive lies primarily with the Government, who should ensure the effective implementation of its provisions in case of delegation to professional bodies. As the ultimate authority accountable for regulation it is the duty of governments to rigorously assess and where necessary provide sufficient challenge to such demands, as such responsibility must remain with them and should be reinforced. Conclusions made by professional bodies appear to be too readily accepted by authorities. The burden of proof must ultimately rest with public authorities and supporting them through a strengthening their oversight and means of enquiry would assist them in properly meeting their duties and best interests.

Often those who exert the strongest influence on regulatory decisions are those within the profession itself. Whilst it is undeniable that such persons are the best placed to advise on the practicalities and technicalities of the profession, they are not always equipped to properly assess, as one would expect, nor specifically tasked with consideration of the wider social and economic ramifications. It should also be acknowledged, as reflected during the Mutual Evaluation, that commonly the pressure to regulate stems from these same professionals. In this way often the interests of the professionals, the prestige of the profession and their lobbying for regulation was not only reported by Member States but even posited as a suitable justification in the public interest. This was reflected in the consultation which received a significant proportion of responses from bodies representing the professions, often in an organised manner. In addition the consultation indicated that in around 61% of cases these same bodies constituted the main consultative constituency and in a few no consultation of any sort was even routinely undertaken. It is also revealing to observe the difference between outcomes of public consultations on regulated professions, depending on the respondents targeted by those consultations. In the Czech Republic, the need to reform the professional regulators has first been subject to ex-ante public consultations in 2012 (for employees) and the outcome was in favour of liberalisation, whereas the results of the second public consultation carried out in 2014 (targeting employers) were in favour of maintaining the status quo. In view of the results of the public consultation, most national regulatory authorities seem to consult only professionals and no other interested parties, such as users of professional services or potential new entry professionals (young professionals, students), business, unions, competition authorities or consumer groups. A proper understanding of the broader impacts of regulation, attendance to such issues in considering costs to benefits judgements and an exploration of less restrictive means to achieve the same goals should therefore be more robustly demanded so as to balance the evidence base for regulation. This is reflected in around 84% of respondents who said that wider economic impacts and cumulative effects should be clarified for reviewing regulations Furthermore, the assessment process, carried out by Member States was supposed to cover all regulated professions, within the scope of the Professional Qualifications Directive, including those having particular harmonised minimum training requirements at EU level, with the purpose to avoid gold-plating, i.e. an excess of norms, guidelines and procedures accumulated at national, regional and local levels, which interfere with the expected policy goals to be achieved by such EU regulation. The justification submitted by Member States often referred only to the name of the EU legal instrument, without further assessment of the cumulative effect of all restrictions. In addition, due to the fact that some professions are excluded from the scope of the Directive, Member States did not perform systematic proportionality checks, which raised a number of inquiries and parliamentary questions. Given these factors, improving transparency going forward is therefore a fundamental element. Attendance to more transparent practices should ensure that views from a broader range of stakeholders are engaged; that the process is open to scrutiny and, it is foreseen; that knowledge of this exposure will fortify authorities' engagement in both the process as well as its outcomes. Ultimately thereby, sharing best practices and approaches to the similar type of decisions faced by other Member States. 3.5.Who is affected, in what ways and to what extent? As outlined above, the negative effects of unnecessary regulation have far reaching economic implications. The impact is mostly negative for young professionals and potential new entrants, such as students, but also for consumers of professional services. Regulatory barriers negatively impact both domestic and foreign EU services providers seeking to access the profession and to offer their services in the single market. They act to restrict the supply of professionals thereby constricting employment in those professions and in turn placing upward pressure on wages which the consumer must bear. In this respect it is interesting to recall the high importance consumers placed upon costs as a deciding factor when choosing a professional to provide them with a service. This in turn has ramifications for the competitive environment, again impacting upon consumers, but also leading to less innovation, and related resilience, within business. Given the predominant place of professional services in the European economy, unnecessary costs disperse throughout sectors including manufacturing. Those most directly and apparently affected are those new professionals who wish to enter the sector (see economic section). The lack of clarity is also an obstacle for national administrations to conduct proper proportionality tests. 3.6.How would the problem evolve, all things being equal? Without further intervention at an EU level, the problems identified during the Mutual Evaluation are likely to persist; indeed there are grounds to expect that the situation will worsen as Member States increasingly diverge from one another without any improvements to current methodologies and a strengthening of expectations in line with conventional good regulatory practices. Member States are likely to continue to take action in isolation, exacerbating the current divergence of approaches adopted by the Member States, thus increasing fragmentation in the regulation of professional services across the Single Market. Fulfilling their existing obligations would be left to the individualised approach of each Member State, and as such is likely to prevent appropriate implementation. In this context, despite the guidance provided by the Commission during the Mutual Evaluation, experience shows that decisions are still being inadequately or openly interrogated and levels of scrutiny across the Member States are uneven. No action at the EU level would mean this continuing and as a result the likelihood that ill-conceived regulation be adopted. This risks new regulatory obstacles further fracturing the market and thus intensifying those economic risks already identified in this Impact Assessment. The quality gap between those countries who already prioritise proportionality testing into their legislative process and those who have not is evidenced by the difference between some countries, having incorporated the frontrunners' approach and others, making the internal market fragmentation all the more tangible. More importantly, Article 59 of the Professional Qualifications Directive does not fully play a preventive role as regards the adoption of new disproportionate regulations. As a consequence, those barriers cannot be removed solely by relying on Article 59 of the Professional Qualifications Directive and on the Treaty, since initiating infringement procedures against the Member States on a case-by-case basis would be very challenging for national and EU institutions, considering the huge number of professional regulations across the EU, as well as the overall duration of infringement proceedings from their initiation to termination. Furthermore, in most cases the Commission cannot substitute its own assessment of an individual situation for that of national authorities as it does not possess all the necessary information as regards the particularities of the market and the effects of the regulations in place. The Commission can only do so in cases where regulations are clearly excessive and disproportionate. 4.EU right to act and subsidiarity Depending on the option chosen, the legal basis could be either Articles 46, 53(1) and 62 TFEU (Directive of the European Parliament and of the Council) or Article 292 TFEU (Commission Recommendation). The EU has the right to act in the field of regulation of professions for the achievement of the Internal Market objectives based on the articles in the TFEU on the free movement of persons and services. In particular, Article 46 TFEU provides for specific provisions to be adopted in the area of free movement of workers, Article 53(1) TFEU provides for issuing Directives concerning the taking-up and pursuit of activities as self-employed persons and Article 62 of the TFEU is the basis for legal acts on the exercise of the freedom to provide services. According to the subsidiarity principle, the EU should only act where the objectives of the proposed action cannot be achieved sufficiently by Member States and where the objectives can be better achieved by the EU. The current uneven scrutiny of the regulation of professions across the EU has a substantial impact on the wider economy as shown above, the provision of services and the mobility of professionals. Action by individual Member States alone will not ensure a coherent EU legal framework for assessing the proportionality of the national regulation and address the existing problems faced by national authorities. As evidenced by the information obtained in the Mutual Evaluation, the criteria used and the intensity of the assessments vary significantly between Member States. The objectives of the action, namely the reliability and comparability of proportionality assessments could be achieved more successfully at the Union level through the introduction of a common EU-wide assessment mechanism, enacted by all Member States in a similar way by virtue of its scale and effects. National law would hence reflect the criteria set out in the proposed action and which would have to be considered by the national authorities when assessing the proportionality of national regulations of professions. Thus, by providing a common set of criteria as to the method that Member States need to use to carry out proportionality assessments, the proportionality test would ensure that the rules are applied in an equal manner by all national authorities. At the same time, the initiative will reinforce the quality of the assessment of envisaged national legislation from which national governments should be in a position to examine alternative mechanisms, draw conclusions and propose appropriate actions to modernise their national legislation. An EU approach would enable national authorities to perform comprehensive and comparable proportionality checks by creating a transparent and predictable legal framework to assess barriers to regulated professions. 5.Consistency with other EU policies and with the Charter for fundamental rights

The objectives are consistent with the Commission’s priorities as set out in its Single Market Strategy and with the EU objectives broadly of creating growth and jobs, ensuring free movement of professionals, improving the environment for businesses and offering choice to consumers. Apart from the proportionality test, another action, announced in the SMS is the periodic guidance on specific needs. This initiative aims at identifying problems per country and per profession where the reform of the regulatory framework would be economically beneficial, and based on which the Commission will recommend Member States level action. These recommendations will be developed using qualitative and quantitative information gathered during the Mutual Evaluation exercise as well as follow-up reporting by Member States. These two actions are complementary, in the sense that the proportionality test would provide general framework for the criteria to be used when assessing the proportionality of envisaged regulation, while the periodic guidance on reform needs will focus on specific issues, identified in existing regulations in certain professions or sectors. The present initiative is not inconsistent with the initiative to improve notifications under the Services Directive, since it does not provide for additional notification procedure and implies that proportionality tests, carried out in the context of regulated professions will continue to be communicated to the Commission on the basis of existing procedure, set out in Article 59 (5) and (6) of the Professional Qualifications Directive. Notifications under the Services Directive are different in scope in terms of which professions and situations they apply to as well as which measures. There will be certain overlaps as far as requirements are concerned which are covered by the services directive, such as legal form and shareholding requirements, and which are also part of regulation of professions. Implementation will pay due consideration to such instances so as not to be onerous for MS and to ensure that COM services are linked up. Action at EU level would be compatible with the EU Charter of Fundamental rights as it ensures free movement of professionals, services, and the freedom of establishment. 6.Objectives 6.1. General policy objectives Following experience from the Mutual Evaluation therefore, our intention is to future-proof regulation from further the unsubstantiated and inadequately understood effects of future regulatory decisions. The general objective of this initiative is to improve the functioning of the Single Market for professional service providers and citizens by improving the quality of regulation in the professions through the proportionality assessments and thereby, ultimately, regulatory outcomes. In doing so, this initiative aims at ensuring that only proportionate regulation is put in place to achieve a modernised, simplified and improved access to professions across the EU. The objective implies focussing mainly on prevention, instead of ex-post control of disproportionate regulations. To be clear, this proposal would apply only to future regulatory reforms. In this way the action is intended to stem the introduction of new burdensome requirements and to better inform decision makers at the moment when they are already considering reforms. Following our experience we know the rate of change in the regulation of professions to be high and as such have judged that the pre-emptive step of a robust evaluation would be more efficient than retrospective corrective actions following injurious or unnecessary choices. As an indication, if from the 5700 professions we were to conservatively estimate a reform once a decade for each; it would represent 570 changes annually. Reflecting this; our public consultation showed 28 professions who alone accounted for 147 regulatory changes in the past decade. Given this preventative intention therefore, as well as the sheer scale of change witnessed, it would be neither desirable nor conceivable for COM to monitor changes and issue subsequent guidance along the lines of that currently being undertaken by our second SMS initiative for Reform Guidance. Additionally and according to this high rate of regulatory change, we would expect the benefits of a better regulatory environment for service providers to accumulate over the longer term. 6.2.Specific policy objectives In order to achieve the general objective set, the following specific objectives have been defined as follows: Clarify and systematise the minimum criteria to be used for proportionality analysis; Make proportionality assessments more transparent, reliable, comparable, objective and comprehensive across the Member States to ensure that the regulation they approve is best fit for their objectives and that all relevant interest are served; Ensure that rules are applied in an equal manner by all MS at all levels of regulation to avoid fragmentation of the Single Market. 7.Policy options The policy options below can be considered for the content of the initiative, bearing in mind that with the exception of the baseline scenario, on substance the different elements in most options are not mutually exclusive and could therefore be combined. 7.1. Baseline scenario: no new action Under this option the Commission would continue to rely on the existing framework, without undertaking further action to address the weaknesses in the assessment of proportionality in regulation or the lack of clarity as to the criteria to be used for conducting proportionality tests and complying with legal obligations.

7.2.Policy option 1: Guidance approach Under Option 1 the Commission would support Member States' actions in clarifying the existing obligations on how to properly analyse the proportionality of national regulations. The following aspects could be included under this option: Drawing up a Code of Conduct in agreement with the Member States, laying down a range of "best practices", "acceptable practices" and "unacceptable practices" to guide Member States when carrying out proportionality assessments, based on national experiences gathered during the Mutual Evaluation exercise; Establishing a list of the relevant case-law on specific professions providing concrete examples; Facilitating a reinforced information exchange between regulatory authorities, including by building on IMI (a system already available at EU-level and familiar to national administrations). 7.3.Policy option 2: EU proportionality test for regulated professions – common set of criteria Option 2 is a comprehensive European level solution setting up an EU-wide approach for assessing the necessity and proportionality of national regulations in the professions. The instruments under this option would represent a tool for the better regulation of professional services. 7.3.1. Option 2a Legally binding instrument (Directive) The objective of this option would be to give clarity on all the aspects to be addressed in assessing the proportionality of proposed legislation or modifications to the existing whilst setting out concrete obligations to be transposed in national legislation. Member States would therefore apply the proportionality test during the adoption process of new legislation, i.e. prior to adoption or when reviewing or modifying existing legislation. Under this option the existing case-law will be consolidated into one comprehensive instrument, laying down a proportionality test. For instance, whereas the concept of overriding reasons relating to the general interest, developed by the Court of Justice identifies specific legitimate interests to protect in each case, the new instrument could list the objectives already recognised as such, e.g. consumer protection, protection of workers etc. in a comprehensive way in order to facilitate the assessments conducted by Member States. The instrument could also limit where necessary the possible justifications for regulating a profession. The criteria set out in the instrument, suggested in option 2a would have to be considered by the national authorities in a structured way. In particular, the proportionality test would cover the following aspects: Identification of the overriding reasons relating to the general interest which justify the measure; Identification and assessment of the nature of the risks to consumers, to professionals or third parties, including where the risks can be reduced by new technological developments. Member States would have to demonstrate, on the basis of evidence, whether and why rules pursuing the same objective (such as consumer protection law) are considered inadequate to protect the relevant public interest objectives; Assessment of the necessity of requiring possession of specialised skills and training focussing specifically on the level, the nature and the duration of the training required for specific tasks, as well as on the existence of different routes to obtain the qualification; Analysis of the scope of practice and the reserves of activities; Estimating the effects of the regulation and the economic impact of the proposed measures including a consideration of market impacts and free movement of professionals;  Analysis of the alternatives to regulation or less restrictive regulation (such as protected title). Obviously, it would be open to Member States to consider the impact of potential market restrictions, resulting from non-regulatory barriers, such as voluntary certification schemes, replacing regulation. The reasons for concluding that an objective cannot be better achieved by less restrictive means would have to be substantiated by qualitative and, wherever possible, quantitative indicators (cost-benefit analysis). Assessment of the cumulative effect of restrictions imposed on the same profession. As already mentioned in the Communication of 2 October 2013, multiple layers of regulation will have to be carefully designed, in order to avoid the risk of duplication. Regulation of professions should be maintained only where existing safeguards are not sufficient. In addition to consolidating existing case-law and best practices, the instrument would ensure better transparency and effectiveness of the existing legal framework as regards the possibility for other Member States or even professionals and consumers to access the information concerning new regulations and their proportionality assessment, which have been communicated pursuant to Article 59. This would give them the opportunity to express their views on the quality of the assessment provided and merit of its conclusions. Furthermore, this option would better enable the Commission to maintain a quality check on proportionality tests and thereby, over time, more intrinsically influence the assessments and ultimate outcomes in proportionate regulatory improvements. Additionally, it would serve as a transparent alert mechanism for those Member States who continuously misapply the proper principles and thereby offer the opportunity to improve support for them or in excessive cases to take more stringent enforcement action.

The scope of this option as regards the professions covered would correspond to the scope of the Professional Qualifications Directive and it would cover all regulated professions, except for those which are explicitly excluded (such as notaries). 7.3.2. Option 2b Non-binding instrument (Recommendation) Under this option, the proportionality test could be in the form of a non-binding act, i.e. Commission Recommendation. On substance, this option is similar to option 2a since the instrument will include all the elements listed under that option, but given its non-binding nature, would serve only as 'optional' regarding how to analyse properly the proportionality of the envisioned regulation. However, transparency could not be achieved since there would be no obligation for the Commission to give other Member States access to the information received or to make it publicly available to citizens and stakeholders. 7.4.Policy option 3: Comprehensive modifications of the existing system 7.4.1. Option 3a Legally binding instrument (Directive) In addition to the elements indicated under Option 2a, this option includes some procedural aspects. In particular, Option 3a covers the following elements: An obligation to perform periodic reviews of existing national legislation (to ensure it is keeping pace with social and technological needs); An obligation to ensure consultation of all interested parties, e.g. individual professionals, professional organisations, academic, research, competition authorities and consumers at national level prior to the introduction of new measures (to support a wider view of the costs/benefits/ impacts of changes); Requirements for national authorities conducting proportionality checks (to ensure objectiveness and impartiality). Procedural elements, such as the organisation of public consultations are necessary to evaluate objectively the potential impact of regulation. Extending to all Member States the obligation to perform periodic reviews which has already been introduced in several Member States, in particular Austria, Denmark and the UK, and which is generally accepted as best practice. Under this option, Member States will have to take the necessary measures to guarantee that the proportionality test is carried out in an objective and independent manner in order to ensure its effectiveness and appropriateness and that its scope of enquiry goes beyond that of the already practising professionals. As regards the scope of this option, this approach requires covering all regulated professions in all sectors of activities currently covered by the Professional Qualifications Directive. 7.4.2. Option 3b Non-binding instrument (Recommendation) Under option 3b, the proportionality test would take the form of a non-binding instrument, while on substance it will cover all the elements, listed in option 3a. Similarly to Option 2b however, the transparency aspect will not be addressed. 8.Analysis of impacts The depth of expected impacts will differ between the voluntary or mandatory nature of the options, particularly with regard to their level of implementation. This is the fundamental difference between the options, where for example the intensity of expectations regarding the rigorousness of the option ascends, the distinguishing feature between options 2b and 3b on one side and 2a and 3a on the other relates to whether the 'process' aspect is of a compulsory or optional nature. The foreseeable effect on regulatory changes, which should either be better designed or evaded as a result of an upfront, shared and defined assessment of proportionality will accordingly, improve or avoid the negative economic consequences defined above in this paper [see section 1.3]. In all cases, and following experience during the Mutual Evaluation, the exact formulation of any proportionality test will be developed according to the parameters already set out under the treaties and elaborated upon by the settled case law of the European Court of Justice as well as those accepted according to basic better regulatory principles. It is expected that the Commission would work closely with regulators across the Member States to design and adopt an approach that is least burdensome and most supportive to achieving a positive outcome through wherever possible by building upon practices already in operation. The analysis below will not assess the environmental impacts because none of the specific policy objectives or the assessed policy options have environmental dimensions. 8.1.Baseline scenario This option would meet none of the objectives. Furthermore, this option does not entail any positive impact from an economic or social perspective and is even likely to have a negative impact, since it will not help to reduce the unnecessary and unjustified barriers. As regards the impact on the Single Market, no policy change at EU level would mean that the current uneven performance of proportionality checks and the differences of quality and intensity of proportionality assessment conducted by Member States would remain, ultimately leading to distortions of the Single Market. From the consultation is was clear that many stakeholders, even those serving a regulatory role, were unclear abour obligations to proportionate regulation. In the continued absence of clear rules on the way to conduct proportionality tests, the existing general obligation to comply with the proportionality principle would continue to rely on ex-post enforcement action, with the understanding that this could significantly increase litigation costs, linked to infringements for all parties concerned. In practice, it would remain difficult to identify disproportionate rules and it would not be efficient to challenge more than 5000 superficial assessments.

Under the present circumstances launching infringements is problematic. This stems in large part from the lack of information available to the Commission on which to inform and pursue cases. The judgement as to the proportionality of a measure rests upon a holistic appreciation of the regulatory environment in which that measure functions. Such information is not only most amenable to the Member States rather than the Commission but also dependent upon the existence of a rounded enquiry into that environment such as through proportionally analysis. 8.2. Policy option 1: Guidance approach Impact on policy objectives As regards the impact on the specific policy objectives, to date the guidance approach has not been very effective in solving the problems. The main achievement of such approach which can reasonably be expected would be to play an explanatory role in supporting those national authorities which have difficulties in performing proportionality checks but which are willing to improve. In that context, it should be emphasised that the Communication of the Commission from 2nd October 2013, for the Mutual Evaluation, already provided guidance for Member States on the aspects to take into account when conducting proportionality assessments of their regulated professions. However, as discussed above, this proved insufficient to promote the conducting of adequate proportionality assessments, including the assessment of the cumulative effects. Based on that experience, therefore, it could be concluded that the guidance approach would not deliver the desired outcomes. Although for the 12 professions under focussed discussion during the Mutual Evaluation, the quality of the publically available proportionality assessments could be said to have gradually improved to a certain extent, this positive effect did not extend to the remaining professions across Member States and where the information which was not made public. Furthermore this positive effect could be said to be due to the fact that there was a peer pressure to improve proportionality arguments put forward by national authorities as preparation for intensive group discussions in Brussels. Due to its dependency on the goodwill of individual authorities therefore, this option does not appear to be an effective approach and the current legal framework alongside those of different national initiatives has shown to be ineffective in addressing the issues. Economic impact The economic impact on operators is expected to be slightly positive in those areas where an in-depth exchange of information between Member States and intensified scrutiny is facilitated by the Commission. Impacts on SMEs and microenterprises No costs are foreseen for SMEs and microenterprises. Impact on Member States Public Authorities and administrative costs Whereas in principle this option does not entail significant costs for national administrations, as proportionality assessing obligations were already envisioned by the modernised Directive, due to the shortcomings of this option to achieve the policy objectives, it may lead to costs for those authorities who have yet to comply with these pre-existing obligations. This cost was already calculated and presented in the impact assessment SEC (2011) 1558 final, showing that the organisation of in-depth exchange of information would represent an additional cost of 400 - 7.000 euros per Member State. Impact on the Commission Depending on how this option is implemented, it could bring additional costs to the Commission. It has to be born in mind that so far the guidance approach tested during the Mutual Evaluation implied important costs as a result of the organisation of in-depth exchange of information, meetings and reports on professions. As an indication, the total cost for the organisation of in-depth discussion meetings on 12 professions has been estimated at 81932,22 euros. The costs of infringement proceedings would increase in view of the number of missing proportionality assessments, due to the difficulties to comply with the pre-existing obligation. Problems in pursuing ex-post infringements to motivate correction owing to the asymmetry, or complete lack of information would persist. Social impact From a social perspective, it could be expected to have some positive impact on consumers and citizens in general, but again limited to the areas and sectors where authorities applied proportionality principles, subject to exchange of information. Stakeholders views The results of the public consultation show all categories of respondent supporting the issuing of 'common guidance' in a mandatory form. The only category that did not support steps to clarify the current situation in either a voluntary or mandatory form came from within the German and Austrian crafts sector. [Annex 2]. 8.3.Policy option 2: EU proportionality test for regulated professions 8.3.1. Policy option 2a EU proportionality test for regulated professions (legislative)

Impact on Policy objectives Due to its binding form, the value-added of this option would be to more effectively drive the changes necessary to deliver meaningful improvements. As the instrument will have to be transposed into national law, it would oblige Member States to consider necessity and proportionality when introducing (or amending) legislation in a systematic and structured way. Through compelling more in-depth reviews, and accustoming authorities to such analytical conventions, this option is expected to have the cumulative impact of improving the regulatory landscape overall. The EU-wide legally binding proportionality test would guarantee that proportionality checks are carried out at an appropriate stage of the process, before legislation is adopted or even proposed and is endorsed by the authority that takes the political responsibility for tabling a proposal (i.e. responsible ministry or government or local/regional authorities in case the profession is regulated at regional level. Furthermore, the initiative will effectively: clarify and systematise the minimum criteria to be used for proportionality analysis thus creating a transparent and predictable legal framework to assess barriers to regulated professions and utilising aspects drawn not only from case law but also general better regulation practices. make proportionality assessments more transparent, reliable and comparable across Member States; facilitate compliance with the existing requirements: notification of regulation and reasons for which it is considered proportionate, as stipulated under the existing EU rules (Professional Qualifications Directive and the Treaty); ensure that the rules are applied in an equal manner by all national authorities require solid evidence to help shaping the involvement of stakeholders in policy making; allow for the analysis to be publically available. Failure to transpose this framework into national law could be challenged by way of infringement proceedings. So as to ensure legal certainty, any failure by a Member State to conduct a proportionality assessment would not affect automatically the validity of the national rules. On the other hand, depending on the national legal regime, the absence of a properly conducted proportionality test, resulting in the adoption of disproportionate measures could be challenged more effectively before national courts by citizens affected by those measures and lead to their invalidation or annulment. Given that such an instrument would impact on Member States' decision-making processes, an appropriate level of margin for implementation by the Member States must be ensured and must fully respect their responsibilities to organise national decision-making and legislative procedures, in line with the principle of subsidiarity. Therefore, concrete modalities, institutional responsibilities and timelines for carrying out such an assessment in the course of the legislative process would be for Member States to decide. The most significant benefits of this approach is to not only oblige authorities to fully conduct a proper analysis but also to make openly available for scrutiny their analysis. This would deliver greater transparency to the regulatory process and enable a quality check on proportionality tests and thereby motivate an improvement in assessments and in turn the final regulatory outcomes. Additionally, it would serve as a transparent alert mechanism for those Member States who continuously misapply the proper principles and thereby offer the opportunity to improve support for them. Economic Impacts The impact felt by business will largely be positive in so far as the proportionality test may lead to better regulation or prevent inadequate legislation from being proposed or adopted. This option will prevent adoption of regulation which is not appropriately designed and implemented and thus can effectively create market restrictions, limit innovation and consumer choice. Impediments to competition lead to a reduced market performance, mirrored in ineffective resource allocation and excessive rents. Given the specific objectives of this initiative, notably to improve the quality of regulation of professions, the economic impacts of this initiative is expected to materialise in a mid to longer term perspective. Ultimately, the fact that new regulation should be better designed will keep access to jobs open inasmuch as protection of public interests is ensured, hence without compromising on the quality of services provided. The analysis presented by some Member States points to an increase in GDP to be gained from reforming the regulation of professions – confirming that the modernisation of the regulated professions can significantly contribute to growth and job creation. Impacts on SMEs and microenterprises The impacts of this proposal on SMEs and micro-enterprises will be largely positive as it will mitigate the possibilities of low quality, burdensome regulation from being enacted. This should in the long term improve market access and mobility across the EU countries. As the empirical studies mentioned above show, the liberalisation of certain requirements increases market dynamics in so far as it brings new players into the market. In fact, increasing the access to a wider pool of professionals will make it easier to hire people having the necessary skills, and will contribute to lowering cost to access professional services that in case of SMEs are often outsourced, thus improving their competitiveness. Impact on Member States Public Authorities and administrative costs Member States already have an obligation to perform proportionality checks under the Professional Qualifications Directive and the Treaty. Whereas the proportionality test is expected to facilitate the fulfilment of the existing obligations and to set up a comprehensive methodology for the assessment of the proportionality of national regulations, it does not imply new additional financial or administrative burden for the national administrations. Administrative burden for national authorities of proper application of proportionality test was already imposed and assessed in the Professional Qualifications revision of 2013 and thus constitutes a part of current scenario. Therefore, all Member States who already prepare good quality proportionality test will face no additional burden as result of Option 2. However, all those Member States who are not yet in full compliance with the Directive will have to face administrative burden equal to around 2 working days or around €700 per regulated profession (total cost between 3,700 and 115,000 euros, depending on the Member State and number of proportionality tests to carry). This cost is thus not a result of Option 2 but of the existing regime. These costs will also apply to all future professional regulations that Member State may want to introduce – and again this cost has already been introduced in 2013.

However, since the proportionality test is supposed to facilitate the work of national administrations, Option 2 is expected to reduce the overall cost on the long run. A positive effect in terms of administrative costs could also stem from the fact that Member States are likely to be faced not only with less EU-Pilot procedures or infringements as a result of an improved system but could also result in a more simplified implementation of better designed and targeted regulatory decisions going forward. Additionally, we are aware of some form of proportionality assessment already existing in some Member States this should mean a lesser implementation burden for those states and also gives the Commission some structures upon which to build our framework. Impact on the Commission The impact on the Commission would be related to the general costs, implied by monitoring the transposition and the correct implementation of the new legislation, resulting from Option 2, which is expected to be largely compensated by the lower number of infringements. Social impacts Social impacts are intertwined with the economic impacts and include, on the one hand, the impacts this proposal will have on employment in the professions affected by a change in regulation, on the similar professions and on the employment in general (in terms of numbers, age structure, quality of contracts, etc.), which includes the mobility of professionals across the board and between professions. On the other hand social impacts cover social inclusion considerations and consumer related impacts. For example, there are indications of a changing age structure, reflecting easier access for younger people to some professions further to a regulatory change. Some positive effects can be seen on employment and the number of start-ups in certain professions, access to which have recently been facilitated. It has also been shown that the opening-up of regulated professions can increase professional mobility and help professionals to quickly respond to labour market opportunities. In terms of social inclusion, services become more available and more affordable. Conversely, proper analysis will support the development of the data necessary to properly understand the nature of risk and to ensure that responses are effective in mitigating them. In this way it is not inconceivable that protections on currently poorly understood hazards could increase or at least be better designed to the task. In this way consumer protections could be strengthened or at least cost to benefit trade-offs better understood. Stakeholders views Analysis of the replies to the public consultation indicates sound support for a legally binding instrument [See Annex 2] 8.3.2. Policy option 2b EU proportionality test for regulated professions (Recommendation) Impact on policy objectives A recommendation may encourage Member States to carry out proper proportionality assessments, based on the criteria, identified in the new initiative. Thus, it would provide the necessary clarity as regards the criteria to be used when conducting proportionality tests and it would significantly facilitate compliance with the existing requirements to comply with the principle of proportionality. However, it is likely that in practice, the application of such a recommendation would diverge from Member State to Member State and rules may not always be applied in an equal manner by all national authorities or in all specific instances. Achieving the policy option objectives of promoting objective, transparent and comprehensive proportionality assessments, applicable at all levels of regulation in an equal manner through a Recommendation would mean reliance on Member States' willingness to comply with already existing obligations. Nevertheless, even though Member States would be free on whether to adopt detailed national rules on conducting proportionality tests and not just to implement the general obligation to comply with this principle as set out in article 59(3) of the Professional Qualifications Directive, in line with the Recommendation, they could be under some political pressure to do so. Compliance by some Member States may compel others to take into account the suggested approach. A recommendation would be more easily accepted by Member States and could represent an immediate solution to the problem, compared to the heavy legislative procedure. However, the impact would very much depend on any follow-up to the recommendation. Economic impact In order for all the economic benefits of this option to be fully realised, similarly to option 2a, the recommendation would have be followed by all Member States. Impact on Member States' authorities and administrative cost No significant costs on Member State's administrations can be expected, since the method of implementation of the Recommendation will be left for Member States. However, those Member States who are not yet in full compliance with their existing obligations and choose to implement the Recommendation will have to face administrative burden equal to around 2 working days or around €700 per regulated profession as previously mentioned. Impact on the Commission As regards the impact on the Commission, a very insignificant additional administrative cost can be expected as a result of the Recommendation follow-up, linked to the control of the implementation of the Recommendation. However, it can reasonably be assumed that this cost would be significantly less important than the cost of litigation procedures in the absence of a recommendation, setting out the main aspects of a proportionality test. Similar to the guidance option, problems in pursuing ex-post infringements to motivate correction owing to the asymmetry, or complete lack of information would persist and place burdens on the Commission. Social impacts Similarly to option 2a, under this option the proposed measure would lead to a more efficient functioning of the market and thus positively affect the level of employment. Depending on whether Member States follow the recommendation, the new initiative may increase confidence, as well as foster investment, innovation and technological developments.

Stakeholders views The results of the