Select Committee on Merits of Statutory Instruments First Report


APPENDIX 3: EXPLANATORY INFORMATION


Draft Legislative and Regulatory Reform (Regulatory Functions Order 2007

Draft Regulators' Compliance Code

Summary of the Government's Policy Responses to the Consultation on the draft Regulators' Compliance Code

Background

1. The Government's response to the consultation on the draft Regulatory Compliance Code stated that the views expressed by the respondents would, so far as possible, be taken into account before the final drafts of the Code and Listing Order were laid before Parliament. The Explanatory Memorandum to the draft Order further states in paragraph 7.14 that the key concerns of those who will be affected by the provisions of the Code were tackled before the Code and the Order were laid before Parliament. The purpose of this note is to set out the specific actions that the Government has taken in addressing these concerns.

2. To enable the Government to fully understand and deal with the concerns of key stakeholders who will be affected by the Code, the Chief Executive of the Better Regulation Executive (in the Department for Business, Enterprise and Regulatory Reform, BERR) and some of his senior managers met with heads of the major regulators immediately after the consultation closed on 15 August 2007.

3. The purpose of this meeting was to discuss the reactions of the regulators to the consultation and agree changes to be made to the Code in the light of these reactions. Each of the regulators' concerns was discussed and agreement was reached on how to tackle these. The key regulators in attendance at this meeting were: the Financial Services Authority (FSA), the Office of Fair Trading (OFT), the Food Standards Agency (FoodSA), the Health and Safety Executive (HSE) and the Environment Agency. The outcomes of this meeting and subsequent discussions with the regulators and departments influenced the Government's policy responses to the consultation as indicated in the response document, published on 5 October 2007. These issues are set out below.

Issues raised and how Government responded:

Concerns about the expectations raised by the Code and the clarity of the Code itself (see chapter 3 of the response document)

4. Some regulators said that certain provisions of the Code might raise high expectations among regulated entities which the regulators could not meet. As such, they suggested that ambiguous words that might contribute such expectations be removed to clarify the intention of the Code. Other points of clarification related to phrases such as "have regard to" and "general and individual functions". The Government promised to revise the Code in the light of these comments with a view to making it easier to understand.

Action taken:

5. The Government has revised the draft Code in the light of these comments before laying it before Parliament. For instance, a new paragraph (2.6) was added to clarify what it would mean to have regard to the Code. An example was added to clarify the terms "general and individual levels" (see paragraph 2.4). While in an earlier draft, regulators had been required in paragraph 5.4 to provide advice that meets the specific needs of regulated entities, the underlined word was deleted as suggested by the Environment Agency. The phrase "specific intelligence" in paragraph 6.1 was changed to "relevant intelligence" in response to the concerns raised by the Environment Agency. Several drafting changes suggested by regulators were also accepted.

Concerns about the activities of illegal operators (see response to question 4 on page 18 of the response document)

6. Some regulators felt that the Code was skewed too much in favour of businesses and other regulated entities. In particular, the Environment Agency felt strongly that the Code could limit its ability to tackle illegal operators who might invoke it as an additional basis of argument in an abuse of process application to delay prosecution and other enforcement actions.

7. The Government made it clear that it felt that illegal or rogue businesses should take no comfort in the Compliance Code, as its intention is to allow regulators to be able to target more effectively these entities. However, the Government promised (paragraph 3.15 of the response document) to amend the Code to clarify its position about rogue businesses.

Action taken:

8. To tackle the concerns about illegal or rogue operators, a new paragraph 1.4 was added to the Code. This new paragraph states that:

"The Code supports regulators' responsibility to deliver desirable regulatory outcomes. This includes having effective policies to deal proportionately with criminal behaviour which would have a damaging effect on legitimate businesses and desirable regulatory outcomes. The code does not relieve regulated entities of their responsibility to comply with their obligations under the law"

9. The wording of this new paragraph was agreed with the Health and Safety Executive (HSE) and the Environment Agency, both of which agreed that it was a significant step towards addressing their concerns.

Concerns about the requirement to support economic progress (see chapter 7 of the response document at page 35)

10. The draft of the Code that the Government consulted upon required regulators to ensure that their regulatory activities "support" economic progress and to adopt a regulatory measure only if the benefits justify the costs and it entails the minimum burden compatible with achieving their objectives.

11. Some of the regulators, including the Food Standards Agency and the Financial Services Authority questioned the rationale behind the requirement to support economic progress given that their primary objective might not lead them towards that goal. The Government promised (paragraph 7.11 of the response document) to clarify these phrases, although it stressed that the link between regulatory enforcement and economic progress should be maintained.

Action taken

12. The Government accepted the suggestion of the Food Standards Agency that the actual words used in the Hampton Report should be used instead of the word "support", which suggests taking a proactive step. As a result, the Government has replaced the word "support" with the phrase "allow or even encourage" economic progress, as used in the Hampton report.

13. In response to a request by the Department for Environment, Food and Rural Affairs (DEFRA) that the Code should recognise sustainable development as a policy goal, a compromise was reached with DEFRA, as a result of which a footnote was added to para 3.1 of the Code, stating that the costs and benefits which regulators should take into account "include economic, social and environmental costs and benefits". This footnote also addresses the concerns of some regulators, such as the Environment Agency about whether the cost-benefit analysis required in paragraph 3.1 of the Code only allowed for a consideration of economic costs and benefits. Both DEFRA and the Environment Agency are satisfied that the insertion of this footnote addresses their request.

Concerns about the application of the Principles of Good Regulation and the regulatory functions specified in the Listing Order (see chapters 4 and 5 of the response document)

14. Some regulators felt that certain of their functions should not be specified in the Listing Order or that the five Principles of Good Regulation specified in section 21 of the Legislative and Regulatory Reform Act 2006 should not apply to their individual level actions. In particular:

  • The UK Intellectual Property Office (UKIPO) argued that it should not be subject to the Code because it did not carry out regulatory functions as such.
  • The Insolvency Service (INSS) argued that some of its functions should not be specified in the Listing Order because they are not regulatory functions as defined in the 2006 Act.
  • The Financial Services Authority requested that its individual level actions be excluded from the scope of the five regulatory principles specified in section 21 of the Legislative and Regulatory Reform Act 2006.
  • The Environment Agency asked for the exclusion of its activities respect of illegal operators from the scope of the regulatory principles.

15. In its response to the consultation, the Government promised to consider these requests and to decide on the basis of evidence produced by the regulators and the views expressed by those they regulate.

Action taken

16. Following several bilateral meetings with the regulators concerned, the above concerns were addressed as follows:

  • UKIPO was excluded from the Code and the all the functions that the INSS requested to be excluded from the Code were excluded. These decisions were taken following legal advice.
  • The Financial Services Authority withdrew its opposition to subjecting its individual actions to the five Principles having concluded that it could not provide evidence showing that such actions would be exposed to any risk of vexatious litigation if the principles were to apply to them.
  • The Environment Agency agreed that new paragraph (1.4) added to the Code was helpful in addressing its concerns about illegal operators and was, therefore, happy to withdraw its opposition to the application of the five principles to its activities in relation to illegal operators, such as fly tippers.

Concerns about the draft Impact Assessment (see chapter 6 of the response document)

17. Some regulators said that the estimates of costs and benefits of the compliance code did not adequately take into account the fact the many regulators were already implementing some of the measures required under the code. As such the estimates of benefits were overstated while those of costs were understated. DEFRA specifically wanted the Impact Assessment to be revised to deal with issues around costs of implementing the Code. The Government promised to revise the Impact Assessment in the light of evidence received.

Action taken

18. The Government has revised the Impact assessment, primarily by adjusting downwards the potential benefits to business, especially to reflect (a) regulators' views that they had made more progress in reducing burdens and (b) business concerns that regulators might not fully comply with the Code's provisions.

Conclusion

19. The draft Code and the draft Order now laid before Parliament have been much improved as a result of proper consultations involving extensive interactions between BERR officials and stakeholders who will be affected by the provisions of the Code. The opinions expressed by these stakeholders have, so far as possible, been taken into account in producing final drafts of these documents. In its clearance letter to the Ministerial Committee on Economic Development (ED) and the sub-committee on Panel for Regulatory Accountability (ED)(PRA), DEFRA noted that its key concerns on the draft Code had been resolved and appreciated efforts to find a way forward.

Department for Business, Enterprise and Regulatory Reform

October 2007



 
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