CONCLUSIONS AND RECOMMENDATIONS
A more balanced approach to Better
Regulation
1. We conclude that
events in the financial sector do not require a wholesale revision
of the fundamental approach to regulation in other sectors. However,
there are lessons to be learned. Foremost among these are that
regulators should:
(a) seek to understand risk more fully and develop
the resources to do that, where appropriate looking at whole systems
rather than individual problem areas
(b) focus more on assessing possible future risks
(c) identify areas of hidden risk
(d) identify possibilities of conflict of interest in taking decisions
(e) seek to anticipate unintended consequences of regulation
(f) develop mechanisms for challenging prevailing wisdom and political
pressure
(g) involve representatives of consumers in such challenge
(h) be willing to use their powers more effectively
(i) seek to match the experience and weight of those they regulate.
The BRE should support regulators in implementing
these lessons. We would encourage other Select Committees to use
these criteria in assessing the performance of regulators in their
own inquiries. (Paragraph 19)
2. In future, analysts
and commentators must avoid confusing risk-based regulation and
so-called "light-touch" approaches. Risk-based "right-touch"
regulation remains a valid approach provided there is: (a) diligence
in understanding risk; (b) a willingness to accept some degree
of failure (albeit that in certain sectors there must be maximum
effort to eliminate failure); (c) an awareness that risk assessments,
with their tendency sometimes to lead to a false sense of security,
should be subject to appropriate challenge; and (d) the willingness
to be intrusive rather than light-touch when appropriate.
At this stage in the debate, better balance is required in order
to ensure an effective delivery of the regulatory reform agenda.
The BRE should have a role in promoting to the business world
an approach to better regulation that incorporates those principles.
(Paragraph 25)
3. We recommend that
the Government implement the Risk and Regulation Advisory Council's
proposal for a body to challenge excessive regulatory responses
to risk either by way of the RRAC's own proposal for a Public
Risk Commission or through charging an appropriate existing body
with that responsibility. (Paragraph 27)
4. We believe that
principles-based models of regulation based on promoting right
outcomes can have value in promoting simpler and stronger rules.
There is no reason why clear fundamental principles cannot overlie
well-designed and helpful structures of supporting rules and guidance,
with both being appropriately and proportionately enforced. The
BRE and/or the Regulatory Policy Committee should have a role
in determining the frameworks of regulation that are appropriate
in individual instances. (Paragraph 34)
5. We therefore encourage
regulators to seek more active consumer and/or end user involvement,
including at board level, and we recommend that the Better Regulation
Executive should arrange specific measures to allow for consumer
and end user feedback. (Paragraph 38)
6. The Better Regulation
agenda remains a valid project whose aim should be to improve
regulatory outcomes for the whole of society. There remains a
need to improve results in a way that profoundly shifts perceptions.
It seems to us that the BRE needs to develop a stronger role in
evaluating how a more sophisticated Better Regulation agenda might
best be delivered. (Paragraph 42)
Going forward: design and compliance
7. We welcome the
BRE's work on perceptions of guidance and the Government's acceptance
of most of the recommendations in the Anderson Review. We urge
the Government to push forward quickly with implementing those
recommendations and with further means of promoting and sharing
guidance best practice that address the problems we have outlined.
Although we appreciate that there might be resource implications
and legal constraints, we recommend that the Government encourage
regulators and enforcement bodies to be more willing to answer
questions from their regulated organisations and consider creative
ways to permit without prejudice or off the record discussions
on compliance. (Paragraph 47)
8. We welcome the
"Trading Places" initiative and the Hampton implementation
reviews published to date, and look forward to the further Hampton
implementation reviews due for publication this year or early
next year. We encourage regulators and the BRE to explore opportunities
for joint working including—where appropriate and subject
to legal advice—in reporting of infringements outside of
their particular jurisdiction. (Paragraph 50)
9. We recommend that
the BRE seek ways further to improve consistency and quality of
IAs including through more thorough and proactive business validation.
We welcome the Minister's statement that post-implementation review
will be the norm. The BRE should monitor compliance with departmental
commitments to conduct them. (Paragraph 53)
10. The Government
should expedite the setting up and rapid entry into full operation
of the new regulatory committees announced on 2 April 2009, together
with publication of cumulative regulatory costs and benefits in
accordance with its stated intention, and with terms of reference
that will permit a full contribution to the regulatory evaluation
process. In accordance with our recommendations on greater consumer
involvement, the external Regulatory Policy Committee's membership
should allow for a voice for sectors other than solely the business
sector and for consumer and end user interests. (Paragraph 58)
11. The external Regulatory
Policy Committee should take measures to validate impact assessments
and cost-benefit analyses with input from affected parties and
should be given means to provide such parties with incentives
to offer properly quantified advice. The BRE should support it
in that work. (Paragraph 59)
12. To assist in maximising
objective but effective challenge to EU-sourced legislation, we
recommend that the BRE: (a) revisit the recommendations in our
previous report regarding a feasibility study on EU regulatory
reform objectives and the need to increase BRE influence on EU
regulatory reform (including by means of a permanent representation
in Brussels) and as a matter of urgency (b) explore means of improving
and bringing forward in time the UK's input into EU impact assessments.
(Paragraph 64)
Conclusion
13. The better regulation
agenda is more important now than ever; in current economic conditions
businesses are concerned with maximising productivity and minimising
the administrative burdens on them. The evidence we collected
tells us that the principles of the agenda still hold good; proportionate
and risk-based regulation, if properly applied, can deliver the
vital protection of regulation without creating unnecessary burdens
on business. But the debate around better regulation is shifting
in light of the financial crisis, there is increasing pressure
against so called 'light-touch' regulation and concern that risk-based
regulation has not been implemented or enforced effectively. Our
inquiry has shown that there is scope for regulators better to
understand both individual-level risk and systemic risk and to
use their powers of enforcement more effectively. (Paragraph 65)
14. Now is therefore
an important time for the BRE to establish and communicate publicly
its principles and priorities for future better regulation and
to set out clearly the direction of the agenda. The BRE's ongoing
role must be to ensure that better regulation principles are embedded
into Departments and regulators and that those principles deliver
the intended outcomes both for businesses and consumers. (Paragraph
66)
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