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."

Improvements in application of EU law

Every year since 1984 the Commission has presented an annual report on monitoring the application of Community law during the preceding year. After a bad 2012 report, this year's edition published today (22 October) shows some improvement.
The correct application of EU law is a cornerstone of the EU Treaties and at the heart of the Commission's regulatory fitness programme (REFIT). The 30th Annual Report on monitoring the application of EU law shows how Member States are performing in applying EU law. There were fewer infringements open at the end of 2012 than previous years. The number of cases in problem solving mechanisms such as EU Pilot increased. This reflects the determination of the European Commission to work with the Member States to solve problems and improve compliance.
At the end of 2012, the number of open infringement procedures decreased again, by 25 % compared to the previous year. This is related in part to the more frequent use of EU Pilot (a database database that helps establish theconformity of national rules with EU law) and other problem solving mechanisms (such as SOLVIT) which aim to solve problems and promote compliance (see press release).

Culture change for regulators (Australia)

The Australian Productivity Commission release a research report earlier this month on "Regulator Engagement with Small Business" according to which "Regulators can do more to reduce the compliance and enforcement burdens they impose on small businesses. The Commission argues that regulators should ensure they understand how regulation impacts on small business and keep the compliance capacity of small businesses at the forefront of their minds." A regulator's culture and attitude towards business should include the following improvements:

• Regulators should adopt a multi-channel approach to communicating with small businesses with a focus on the brevity, clarity and accessibility of information. 
• Compliance and enforcement strategies should be proportionate to risks posed to communities and facilitate voluntary compliance. 
• Regulators should commit publicly to target timeframes for key processes, report on their performance in meeting targets, and consider other measures to improve timeliness. 
• Regulators should have access to a sufficient range of enforcement tools and be resourced to do their job effectively, to avoid the shifting of direct and indirect costs onto businesses.

OECD consultation on inspections (deadline 31 August)

The OECD is launching a public consultation on draft Best Practice Principles for Improving Regulatory Enforcement and Inspections. The goal of this consultation document is to present a basis for discussion on key issues as well as some key principles on which effective and efficient regulatory enforcement and inspections should be based in pursuit of the best compliance outcomes and highest regulatory quality. The principles address the design of the policies, institutions and tools to promote effective compliance – and the process of reforming inspection services to achieve results. Each of the principles represent a recommendation on one of the main issues for successful reforms and is accompanied by an explanatory text. For more, visit OECD page. Deadline for contribution: 31 August 2013 (tip from Florentin Blanc).

Behavioural science for smart regulators (update)

Complianceforregulators.com is, according to its self-presentation, "a one-stop source for regulators seeking information, inspiration and empowerment, in pursuit of compliance." It is managed by Telita Snyckers-Nørgaard, an experienced management consultant. She has recently posted an interesting analysis of compliance under the catchy title "From the psychologist's couch: 16 concepts that (probably) motivate the people we regulate." It seems to draw from behavioural economics which is now a required input for regulators. See also our posts on the importance of behaviour study for EU smart regulation, and nudging regulatory technique. To discover "the ostrich effect" or the "'hyperbolic discounting", follow the link above. Consultant-speak or something for smart regulators?

W. Woermans on regulatory compliance

"What can public authorities do in order to promote regulatory compliance? (from the summary) "This paper argues that understanding the compliance motives is key to any enforcement strategy. Simply stepping up the enforcement effort or stiffening penalties is – most of the time – quite ineffective. Especially attempts at engineering criminal law rules to achieve a heightened deterrence effects will generally be ineffective, social science research suggests. And – much in the same vein – raising administrative enforcement efforts does not automatically raise compliance rates proportionally. There is not a one-on-one relation between enforcement effort and compliance outcome, although this idea seems to be underpinning a lot of present-day enforcement strategies. Enforcement efforts are but one of the many norm-support cues to comply. Recent research rather suggests that a sort of bandwagon-effect exists as regards regulatory compliance. Compliant behaviour, or enforcement activities that reminds us of (or merely point out) the existence of a norm, prompt (more) compliant behaviour. Designers of enforcement strategies need to keep this in mind."

World Class Economic Regulators join up in OECD

Economic regulators will soon have their own forum in OECD to discuss, with assistance from the international regulatory experts, issues of common interests such as how to guarantee the right degree of independence from government or how to measure their performance and give their economies value for money. On 24 April, some 20 regulating agencies and supervisory departments from some 15 countries met at OECD HQ for the third time to address a range of governance and efficiency issues. Best practices from the US Energy Commission (by John R. Norris) and the Portugal Water Authority (by J. Melo Baptista, from ERSAR) were scrutinised. The quality of the group's work and potential future contribution to the sustainable management of national public utilities (such as energy, telecom and water) may be recognised by member states by granting the network official status under the Organisation's operating rules. This will ensure that a new wealth of OECD economic literature will be updated for regulators world-wide, drawing lessons from success stories, sharing best practice and providing guidance to governments on when and how it may be best to delegate to an arms-length agency the management of such network assets. Any new published resource will be reported on this blog.

Commission to test the efficiency of national courts

On 27 March, the European Commission launched the EU Justice Scoreboard, "a tool to promote effective justice and growth", which according to the press release, offers a comparison of the justice systems of member states in a bid to assess how their activity can affect economic growth.The justice scoreboard will focus on the business and investment climate, such as the efficiency of EU courts to resolve civil and commercial disputes. The Commisison is working on the assumption that the quality of national courts can affect the entire EU, since a lack of implementation of EU law in one court can affect the functioning of the single market as well as undermine the rights of citizens and businesses operating across borders. Smart regulators will not disagree and they will welcome this additional tool to measure implementation and enforcement of regulation. For more, see Euractiv article: "Commission to test the efficiency of national courts" (tip from L. Allio.)

Smart enforcement tackles chemical industry (UK)

After the food industry (see previous post), the chemicals industry is benefitting from the Focus on Enforcement campaign, with more effective, less burdensome enforcement of regulation. Following a government-led consultation with the sector, new measures are announced in a press release dated 6 Feb. "Reforms include plans to integrate inspection regimes, provide greater support to companies who are considering growing their business, and to set out more transparent appeals mechanisms. This will help provide firms with greater certainty and more efficient regulation, enabling them to plan more effectively and concentrate on meeting business objectives."

Spain addresses fragmentation of its internal market

On Friday the Spanish Council of Minister approved a report on draft legislation set to improve the unity of the internal (national) market, for an estimated gain of 0.15% of GDP (€1,500m) per year for 10 years.
The scheme calls for a single license to allow a firm to trade in all autonomous communities (regions) throughout the country, instead of up to 17 procedures. A new dedicated body will bring together central and regional governments to monitor implementation, which will also use a common electronic database to support control and supervision functions. Conflict resolution procedures will be simplified, under the future National Commission for markets and competition. The report offers some detail on each of these points. Our correspondent (Prof. Gamero, Seville) estimates that the new legislation, which was negotiated with the autonomous communties, will be passed by Parliament before the summer, once the RIA has been drafted and endorsed by Governement.

UK Gvt streamlines inspections on food outlets

Just published, a very good summary on the official Government site on how to improve enforcement of legislation by introducing risk-based inspections and publishing better guidance to manufacturers on how to comply. In this Better Regulation approach, more efficient enforcement of regulation serves higher standards of protection by way of less bureaucracy.

"The Government's Focus on Enforcement campaign asked small food manufacturers with up to fifty employees to report on their experiences of working with national regulators and local authorities.

Acting on the feedback received, the Food Standards Agency (FSA) will:

• Allow businesses with a good record of compliance fewer inspections
• Deliver enhanced training for enforcement officers, helping them understand the law and the businesses they are regulating – including an innovative e-learning package that will also benefit business
• Work with local authorities to improve consistency in the quality of enforcement, creating a level playing field for businesses and a dependable level of protection for consumers
• Explore alternate appeals mechanisms in cases of disagreement between the business and the enforcing officer
• Ensure guidance for the food industry on food safety management is clear and concise. FSA will continue to review the guidance on control of cross-contamination of E.coli O157, and engage one of the leading food science laboratories and research centres in the UK to test independently the alternative controls to cross-contamination proposed by stakeholders. This will ensure any unnecessary burdens on businesses can be removed while strengthening the effectiveness of public health protection.
• Working with industry stakeholders, the FSA will assess what guidance is currently available, whether this is accessible and used by industry, and what the FSA can do to help small manufacturers."

Simplifying pub management (UK)

This blog has already reported on the British Governement consultation of stakeholders on which administrative procedures needed to be simplified, with an emphasis on practical difficulties experienced by companies "Focus on Enforcement". The originality is to open a time limited consultation on a very specific issue, such as Chemicals, Food Law, and, as from today for six weeks Pubs.
"The Government is encouraging anyone involved in running a pub, particularly a community pub, to feed in their experiences, good and bad, of dealing with local authorities and other regulators as part of the Focus on Enforcement campaign. Experiences with regulators might include dealing with paperwork, inspections or advice from regulators you come into contact with. The campaign allows comments to be posted anonymously." This seems to be a highly focused and efficient way of getting feedback from the business community. The public may even suggest future areas for investigation of red tape.
See the press release for details.

Queen outlines new regulatory reform

On 9 may, the British Monarch outlined the Government’s priorities for the coming Parliamentary year in the official state opening of Parliament. Projected legislation includes among many other changes such as the House of Lords reform, an Enterprise and Regulatory Reform Bill which ams to :

• Overhaul the employment tribunal system, and transform the dispute resolution landscape.
• Improve the effectiveness and efficiency of competition enforcement and the competitiveness of markets, by strengthening the regime and improving the speed and predictability for business.
• Set the purpose of the UK Green Investment Bank and ensure its independence.
• Strengthen the framework for setting directors’ pay by introducing binding votes.
• Extend the Primary Authority scheme, reduce inspection burdens on business and strengthen the legal framework for sunset clauses on regulation.
• Repeal unnecessary legislation, cutting the burden on business and citizens.

 

A BBC news item reflects political comments : The prime minister told MPs: "Let me say exactly what this Queen's Speech is about. It is about a government taking the tough, long-term decisions to restore our country to strength. "Dealing with the deficit, rebalancing the economy and building a society that rewards people who work hard and do the right thing." Labour leader Ed Miliband said his party would support measures such as parental leave and a Green Investment Bank - but the Queen's Speech contained nothing for the young unemployed, working families and "millions of people who don't think the government is on their side".

Food law enforcement under public scrutiny (UK)

On 1 May, the Department of Business, Innovation and Skills (BIS) launched the first review theme for the Government’s Focus on Enforcement campaign (see previous post), which will concern food manufacturing companies. This initiative is important for us experts as it provides a practical illustration that Better Regulation policies must include steps to determine how enforcement of regulation can be improved, reduced or done differently.

To provide facts for the future review of regulation, For the next five weeks, small businesses in food manufacturing are invited to share their experiences of working with national regulators and local authorities. This can include:

• Dealing with paperwork.
• Inspections.
• Advice given by regulators on how to comply.

Growth potential of better delivery of regulation

Last week the British BRDO (Better Regulation Delivery Office) published a discussion paper, Regulation and Growth, which according to the press release considers whether effective regulatory delivery can benefit businesses and contribute towards UK economic growth. “The paper aims to clarify and inform policy by highlighting three interlinked ways that regulatory delivery can impact on growth: by reducing costs, improving confidence and control and realising wider economic benefits. It focuses on the delivery of regulation that impacts directly on business and is targeted at those involved in regulatory policy and front line practitioners.”
The publication of this paper is very timely, as the topic of implementation (or delivery) is now considered to be a possible weak link in the regulatory cycle. For more references, see the “enforcement” category of this blog, or more specially the post entitled “delivery: the next challenge for better regulators?” The connection between economic growth and regulatory policy in general (beyond the delivery dimension) is the subject of a seminal official publication “Regulatory Policy and the road to sustainable growth” which opens avenues for research which were recently confirmed as one of the priorities of the next work programme of the OECD.

UK news: Quality of RIA improving, focus on enforcement

On 8 March, the independent Regulatory Policy Committee charged by government with assessing the quality of analysis and evidence supporting government departments’ proposals to regulate,published its annual report for 2011 ("Improving Regulation") which demonstrates that Departments achieve year on year improvement of the quality of RIAs, but a quarter of regulatory proposals remain ‘Not fit for purpose.’
Among significant factors that have brought about the improvement, the Government’s "One-in, One-out rule" has according the chairman of the RPC, "undoubtedly put pressure on Departments to strip away regulation" (see also press release.)

Also in the UK this week, the launch of Focus on enforcement campaign, asking the public to help identify where enforcement can be improved, reduced or done differently to improve the business environment and reduce administrative burdens.
Finally, also this week, a Beta version of a new central site for administrative information goes online: GOV.UK The "INSIDE GOVERNMENT section is dedicated to departmental information: policies, consultations, news etc - the type of content that is currently to be found on http://www.bis.gov.uk/.

Where to start with regulatory reform (Myanmar)

An interesting article examines the relevance of regulatory reform for emerging economies. The specifics of the Myanmar situation do not obscure for us more general lessons applicable to many other countries. Here are some highlights to make you want to read the article in full:
"The technocratic chicken or egg? Myanmar suffers from the proverbial chicken or the egg problem: the country needs a sound regulatory and economic base to induce, enable and create technocrats to add value to Myanmar's rudimentary and primary industry-focused political and economic system, but Myanmar lacks the technocrats to actually create a friendly environment for technocrats. Since 1988, military leaders have intentionally weakened Burmese education, spreading out university campuses to prevent the agglomeration of students necessary for proper activism and civil disobedience."
The author also draws up a list for priority areas for change, where regulations must be reformed: "Extensive work is required on drafting sophisticated new laws. As of this writing, Myanmar has a seriously outdated foreign investment law (FDI law), outdated food and drug laws, outdated private enterprise and banking laws, no securities laws, no environmental laws, no mergers and acquisitions (M&A) laws, no derivatives and no commodities exchanges. There are no or very weak environmental, competitive, judicial, legislative, financial, labour, securities, banking and corporate regulatory institutions. So even if there were appropriate laws in place, enforcement and oversight would be all but impossible. Bribery and corruption are reported to be widespread in the country."
Action is urgently required, the article pleads for regulatory reform on the basis that it can prevent a new form of colonialism by foreign companies "carving up the country without regard to environmental, labour, displacement, human rights or domestic capacity issues."

How to simplify company law (UK)

A stakeholder consultation, with a company law and commercial law focus, is launched today by the UK Red Tape Challenge. D. Trnka comments that this new approach can be seen as "an interesting example of how social networks can be used for crowd-sourcing efforts to improve regulatory framework" and is therefore quite worth checking out. Quote from press release "Companies of all shapes and sizes have today been asked for their views on how to tackle unnecessary bureaucracy in company and commercial law.

For the next three weeks, the latest phase of the Red Tape Challenge will focus on more than 120 company law regulations, guidance and enforcement processes that businesses deal with on a daily basis.

The campaign asks for a variety of suggestions about how regulations can be improved, simplified or abolished, whilst maintaining a company law framework that gives companies the flexibility to compete and develop effectively.

Examples of areas open for comment include:

• Internal workings of companies and partnerships: Rules on shares and share capital, requirement to hold information at business premises and rules on meetings and resolutions.
• Accounts and returns: The content, form and auditing requirements of financial accounts and other reports.
• Business names: The rules covering company names.
• Disclosure of company information: The regulations covering the information companies must supply to the official register."

See also new group on LinkedIn

Delivery: the new challenge for smart regulators?

Not really but there is news on the topic.  The new term ("delivery") is being brought in to focus the issue of "enforcement and compliance of regulation" on outcomes, especially in the business world. Regulation is perceived as a service authorities deliver to society. Local Better Regulation Office (LBRO) members posted on the Smart Regulation LinkedIn group news of the publication of an interesting report by the Department of Business, Innovation and Skills (BIS) on "Delivering Better Regulation." This report, well worth reading, summarizes the responses to a consultation on the future of the LBRO, especially in relation to its transfer into BIS, "to make greater use of its experience and expertise as part of the core policy-making of the Department."

The UK experience with LBRO was quite unique in providing this delivery and service role for regulation, which will be preserved in the new structure.

Among the comments received on LinkedIn: Oscar F. reminds us that "NNR ( www.nnr.se  ) presented a study on the need for Better Regulation on the local level in Sweden a few months ago. Next step towards Better/Smarter Regulation needs to focus more attention to regulations on local level as well as the use of "Goldplating " within the EU."

Smart Regulation in its EU version equally places emphasis on the full cycle of regulation, including implementation, and emphasises the transposition and application of EU law.

OECD did some gathering of good practices some years back: chapter 5 of "Regulatory policies in OECD countries" (2002) defines "tools to improve implementation of regulations." (only on a WB site.) More recently, it included an indicator in Government at a glance 2011, (see page 162 indicator "preparing for effective compliance and enforcement of regulations) which contains an interesting table showing which member states have an enforcement policy.) Now a new stream of projects on enforcement and compliance has been launched.

The World Bank, in keeping with its development of business approach, focuses on modernising and making more effective inspections. A kind of manual is offered by "How to reform business inspections: design, implementation, challenges" (main author Florentin Blanc, see his March 2011 ppt for an introduction.)

 

Desperate remedies: Russia imposes fines on red tape

A more forceful way for public authorities to enforce compliance with due process within administrations: whereas most governments rely on training officials and rewarding good behaviour (incentives for officials to promote compliance) Russia is looking into increasing citizens' way of redress, according to new legislation under discussion. "Fines will be imposed on unhelpful state officials in line with a new bill that Russia's Economic Development Ministry will soon bring before parliament. The bill will amend the Administrative Code, placing a priority on complaints from victims of red tape and other mala fide actions by municipal or federal officials. An official's failure to follow required procedure in public duties will be qualified as an offense and punished with a 3,000-5,000 ruble ($110-$180) fine unless lawmakers in parliament's lower house decide on a higher one. To bring an official to justice, the wronged individual will have to lodge an administrative complaint, which will be considered separately from the vast flow of other kinds of complaints." For more, see Nezavisimaya Gazeta article dated 16 June.
For a recent official statement of regulatory policy in Russia, see speech by Dmitry Medvedev at the St Petersburg International Legal Forum in May. The president also signed an Executive Order on monitoring enforcement of laws in practice in Russia.