C.H. Montin, Ankara 12 May 2014 11

Ankara, 12 May 2014

Further techniques to improve the design of legislation

Charles-Henri Montin, Smart Regulation Consultant

Former Senior Regulatory Expert,

Ministry of economy and finance, Paris

http://smartregulation.net

For the full presentation (19 slides), contact speaker

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Contents: three more tools

Considering “alternatives to regulation” during the policy making phase

Introducing risk management into regulatory design

Conducting International Regulatory Cooperation

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ALTERNATIVES TO REGULATION

Why explore alternatives to regulation ? the first response by governments to a perceived

policy issue is often to regulate, but it may be appropriate to ask whether traditional regulation is the best possible course of action. In many situations there may be a range of optional policy instruments other than traditional ’command and control’ regulation available.

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A range of options

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Alternatives in the policy making process

OECD 1995 checklist recommends carrying out “an informed comparison of a variety of regulatory and non-regulatory policy instruments, considering relevant issues such as costs, benefits, distributional effects and administrative requirements".

RIA procedure includes a phase of checking the impact of alternatives, to regulate when it is the only effective solution.

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Pros and cons of alternatives

Smaller corpus of legislation

Assist simplification drive Lower administrative

burdens Better knowledge of

factual situation (sometimes)

Lack of knowledge and practice of A.

Difficult to measure impacts of A.

Symbolic value and credit of regulation (authority)

Risk to uniform implementation

Bureaucratic obstacles Fear of uncertainty of rules

made by others

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Practice of alternatives

The use of A. must be a component of the explicit regulatory policy

Need for research into foreign best practices likely to succeed in the country

Emphasis on avoiding excessive regulation focused on economic sectors; systematically include alternatives in RIA process

Sensitise industry sectors to potential of standards

Need for a change of culture in the policy making circles of government

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RISK AND REGULATION

Some concepts Risk: a combination of probability of a hazard and

magnitude of consequences Hazard: situation that could lead to harm Risk analysis Precautionary principle Administrative certainty and security Risk management Risk based regulation

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Definition of risk based regulation

Range of meanings

(1) Regulation of risks to society

(2) Loose collection of approaches expressed terms of risk

(3) In banking and insurance regulation, the use of firm’s own internal risk models to set capital requirements

(4) Systematised decision making frameworks and procedures to prioritise regulatory activities and deploy resources, principally relating to inspection and enforcement, based on an assessment of the risks that regulated firms pose to the regulator’s objectives

Definition (4) is that used here

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Key issues in design

Approaches taken to risk tolerance The choice between objective and subjective

indicators The relative roles of impact and probability The role of weighting Integrating broader external risks with firm level

risk assessments Dealing with ‘bulge’ –the low risk firms which are

usually the majority of the regulated population

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Lessons from OECD experiences

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The risk cycle in policy making

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Main elements of risk based regulation

Setting the risk tolerance Risk identification and risk assessment Assigning scores and ranking firms or sites Linking supervisory resources and responses to

the risk scores.

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International regulatory cooperation (IRC

Definition: any agreement or organisational arrangement, formal or informal, between regulators (at the bilateral, regional or multilateral level) to promote cooperation in the design, monitoring, enforcement of ex-post management of regulation. Goes beyond adherence to international legal obligations. Can use non-binding instruments

Enshrined in principle 12 of OECD 2012 Recommendation

Best practice: US, Canada

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11 varieties of IRC

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Practicing IRC

Research into foreign regulatory solutions, with emphasis on neighbouring countries

Networking, including personal contacts, with colleagues with same mission in other countries

Formal cadre for conducting cooperation can be required

Bringing the right spirit to sharing experiences and solutions

Filtering IRC feedback into national regulation for convergence or harmonisation

Particularly useful for business related regulation

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To continue the study…

Alternatives: http://www.oecd.org/gov/regulatory-policy/42245468.pdf

Risk: http://www.oecd.org/gov/regulatory-policy/riskandregulatorypolicy.htm

IRC: http://www.oecd.org/gov/regulatory-policy/irc.htm Further questions contact:

• montin @ smartregulation.net