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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