Enforcement Facilitator: Mark Dean 1
DREAM framework Outline The Enforcement Pyramid Options for remedies Early signs when enforcement mechanisms are not working 2
Reminder: The Power Of Incentives Most of economics can be summarised in four words: People respond to incentives. The rest is commentary. Steven Landsburg The Armchair Economist So in enforcement we must look at the incentives that exist now and that will result 6/23/15 3
Reminder: Hampton Principles Regulators, and the regulatory system as a whole, should use comprehensive risk assessment to concentrate resources on the areas that need them most All Regulations should be written so that they are easily understood, easily implemented, and easily enforced, and all interested parties should be consulted when they are being drafted Businesses should not have to give unnecessary information, nor give the same piece of information twice to the same or different regulators The few businesses that persistently break Regulations should be identified quickly and face proportionate and meaningful sanctions. It should be easy to determine non-compliance. Government and regulators should provide authoritative, accessible advice easily and cheaply so businesses know what is expected of them. When new policies are being developed, explicit consideration should be given to how they can be enforced using existing systems and data to minimise the Administrative Burden imposed. 4
Discussion Group 1: Examples of where approaches to enforcement have worked well / or not Group 2: What factors can make enforcement more challenging and how can you address these factors? 5
Challenges of Enforcing Regulation DETECTING Gaining of information on undesirable and non-compliant behaviour RESPONDING developing of enforcement policies, rules and tools to deal with the problems discovered ENFORCING application of policies, rules and tools on ground ASSESSING Measuring of success or failure in enforcement activities MODIFYING Adjusting tools and strategies so as to improve compliance and address problematic behaviour. 6
Detection- Challenges Hard to detect errant behaviour when Regulated community is extensive (e.g. environmental controls for whole population) Easy to hide rules being broken (often have to rely on tip-offs and whistleblowing) On some issues, hard to define compliance Lack of funding and resources So targeting of resources and effort key 7
Responding Enforcers may not have the full range of tools needed because of legal constraints E.g. may not have the power to take samples or issue on the spot fines May be hard to get government to take time to update relevant legislation Resource constraints for surveys and inspections Rules may be too vague, complex, long, or even too specific Do you need to be specific in order to enable prosecutions? Or are you aiming for broad promotion of best practice Rules be be too targeted or too inclusive (or under inclusive) We will discuss enforcement pyramid later Risk of creative compliance by firms Avoid one size fits all consider blended approach 8
Table of Eleven (Dutch Approach) 1. Knowledge of rules (familiarity and clarity) 2. Costs/ benefits (to those affected) 3. Extent of acceptance of policy (objective and effects) 4. Target group s respect for authority 5. Non-official (social) control (e.g. professional expectations, social norms) 6. Risk of being reported (consumer complaint, tip-offs, whistleblower) 7. Risk of inspection (records/ physical) 8. Risk of detection through inspection 9. Selectivity (the perceived risk that violation will be caught affected by hit-rate of inspections etc) 10. Risk of sanction (once caught) 11. Severity of sanction (direct costs of sanction, reputation etc) 9
Enforcement Strategies Informal techniques (education, advice, persuasion, negotiation) to PROMOTE compliance does not work for everyone excessive deterrence can have limited effect on behaviour and conflict with a learning based performance culture but builds constructive relationship between regulator and regulated Formal enforcement and prosecution to DETER noncompliance can be costly to prosecute but arguably provides strong incentives for management of firms to tackle infringement 10
Bounded Rationality The bounded rationality of organisations and top management means that many do not make rational cost-benefit calculations about compliance until something happens to bring the risks of non-compliance to their attention. Economic costs which do not draw attention to themselves by generating some kind of crisis are often overlooked by busy management Parker The Open Corporation 11
Macrory Review (2006) Recommended that a variety of sanctions, falling short of criminal prosecution, would enable regulators to deal effectively with non-compliance in cases where a criminal prosecution is not warranted The UK Regulatory Enforcement and Sanctions Act 2008 (RESA) provided regulators with new civil sanctioning powers Gives regulators the ability to respond on a case by case basis. 12
Civil Sanctions Options (1) Fixed monetary penalty (on the spot fine set to specific tariff) Variable monetary penalty (discretionary) Compliance notice (steps to take in specific time so offence does not continue or recur) Restoration notice (steps to take in specific time so situation restored to what it would have been if offence had not been committed) 13
Civil Sanction Options (2) Stop notice (prohibits regulated party from carrying on activity until specific steps have been completed) Enforcement undertakings (undertaking made by the regulated party to do something specific) (Prosecution still an option) 14
Enforcement Pyramid Ayres and Braithwaite 15
Reminder: Enforcement Strategies Regulated Self Assurance 16
Establishing and Following Correct Inspection Procedures No inspection without a purpose Consistent criteria about what to look for (e.g. checklists) and consistent guidance on responses Coaching and supervision from management Ensure procedures not so rigid that blatantly unfair outcomes result Logging of activities and results via (IT) Inspection Management Systems (allows this to be taken account of in later inspections) Requirements to record reasons for decisions Learning (from experience) mechanisms. (At same time need to avoid too much admin burden on inspectors and other regulator staff) 17
Assessment How do your organisations know how much noncompliant activity is slipping though the net? Challenges Measuring non-compliant behaviour beyond reach of regulatory authority, but that affects achievement of objectives e.g. environment Are laws and rules clear enough to make assessment? Temptation to focus on input activity rather than outcomes Where enforcement is spread across regulators Sometimes can use outcomes e.g. with pesticides in water, proxy measure of how much residues are in water 18
Modifications Need learning culture, not blame culture in regulator (and regulated?) Need not just to tinker with regulatory strategies as they are, but be willing to adopt new strategy (or mix) if needed (e.g. from command and control to industry-administered regulated self assurance). 19
Thoughts The decision about whether to go for preventative strategies or act-stage interventions or harm-stage interventions will depend on risk assessment When you have 90 percent of what you want, think twice before insisting on the other 10 percent Thomas Sowell Cost of perfection can be too high 20
Discussion What early warning signs might there be in your sectors that regulation is not working as it should? (Remember discussions about systemic risk building up in banking) 21
A more collaborative approach? Effective regulation should be viewed as producing desirable behaviour by the people involved; and Businesses should be encouraged to adopt ethical practice and regulatory systems and actions should support and incentivise this. Hodges 2016 BRE 22
Rationalised Regulatory Architecture High-level general principles (provided by the national regulator), which can be seen as akin to outcome based regulation; and Provision of detail at a lower (potentially non-regulator) tier, for example in guidance at sectoral (trade association), internal (group or corporate), or area (Chambers of Commerce for SMEs) level. 23
Moving to Principles/Performance Based Regulation: Enforcement Command and Control Principles Based Intervention strategy based on dialogue and trust (co-operate interest) Authority intervention should be risk based and management system oriented The intervention must be a supplement not a replacement of the industry`s own follow up The Intervention should be balanced between different purposes (Technical and operational safety issues and occupational safety and health) Stakeholder participation (inc workforce involvement) and collaboration are presumptions for the intervention Adequate use of enforcement mechanism
Developing Regulated Self Assurance Command and Control Principles Based Regulators enforcing strategy Control based checking of compliance Dialogue oriented approach Influencing compliance Driving compliance Type of relationship Adverse interest Policing approach Unannounced inspections Use of checklists Common interest and trust Announced supervision Focus on management systems and follow up verifications Involvement of stakeholders Non or minimum involvement of stakeholders Strong involvement of stakeholders in different arenas of cooperation; policy, industrial and entity level PT
Regulated Self Assurance Mechanisms Assurance schemes Industry registers Regulator supervision of industry/professions self regulation Accredited voluntary registration Company self regulation
Pre-Conditions for Successful Policy and Regulation Veracity (willing to embrace truth and facts) Neutrality (open & aware of assumptions) Willingness (determination to find best solution) Acceptance (deal with society/ economy as it is, not as you d like it to be) Reason (logical analysis of evidence) Concern for people (i.e. the real impact in the real world). Thanks for your attention. 22
Further Reading Understanding Regulation (Second Edition) Martin Baldwin, Martin Cave, Martin Lodge 23