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29 January 2014

Regulatory Discretion contributes to Smart Regulation

Our thanks to friend Florentin Blanc, the acknowledged expert on the inspections reform, who has shared with us a summary of the international seminar on regulatory discretion that took place at the International Academy for Legislation on 5 December 2013. Here are some of the insights. "Discretion in implementation of regulations is not only unavoidable in practice (there can be no entirely “neutral” enforcement, there is no rule that does not require some degree of interpretation) – but necessary to ensure that implementation of regulations leads to the desired outcomes of regulation. Without discretion, there is a real risk that enforcement is done in a “tick box” way, with two potential downsides: missing the real threats and risks, and harming the economy without a real positive impact on what the regulation aims to achieve (e.g. safety). At the same time, it is essential to have safeguards, in particular accountability, as a counterpart to discretion."
"From an economic perspective, discretion is undeniably needed to ensure that costs and benefits of regulation are optimised. From a legal perspective, it is seen that (a) whether or not discretion is allowed (for regulators, for courts) depends on the context (country, legal tradition, fact-finding or deciding on sanction etc.) and (b) the evolution of laws and norms (transformations in wording where it is less and less “self evident” whether a given situation is or is not in violation), the complexification of economic activities etc. lead to a gradual slide towards more (explicit) discretion.
"At the same time, there are serious potential concerns with discretion. The first is lack of consistency in treatment, from one inspector or officer to the other. The second is what can happen in a situation where professionalism of public officials is low, ethics are in doubt, wrong incentives are present etc. so that corruption and abuse of power are a real possibility. In such situation, more discretion will lead to more corruption and worse outcomes at all levels. Discretion may also be abused by regulators not for personal gain, but for excessive demands for “ever more safety”. In such situations, “regulating regulators” may not be enough, and looking for alternative mechanisms to ensure compliance (e.g. insurance requirements rather than inspections) may be interesting."

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