Principles for the Governance of Regulators Public Consultation draft



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Principles for the Governance of Regulators

Public Consultation draft

21 JUNE 2013

The Principles for the Governance of Regulators was discussed at the 21 November 2012 informal meeting of the Ad Hoc Network of Economic Regulators (NER) at the OECD, Paris and the 22-23 April 2013 meeting of the Regulatory Policy Committee at the OECD, Paris. This draft paper has been revised following both meetings and is now being published for public consultation.


As part of the work programme of the OECD’s Regulatory Policy Committee (RPC), work is being conducted to examine the delivery and implementation of regulations in the regulatory policy cycle. There is also a public consultation on a paper in relation to enforcement and inspections. This paper is part of the complimentary work on regulatory delivery and the actors involved in regulatory policy and governance.
Please send your comments and country examples (see Annex 1) electronically to Regulators.comment@oecd.org by 31 August 2013.
For further information contact Faisal Naru at faisal.naru@oecd.org.




Foreword1


A good regulatory environment is an essential foundation for high performing nations to make their country a great place to work and live and to protect their environment. High performing regulators are a key lever to encourage innovation across the economy and foster productivity growth, through timely approval processes, flexible approaches to new issues and a service focus.

Over the last decade, OECD member countries have strengthened their scrutiny of new regulatory proposals. There is now a more careful examination of the need for regulation and the available design options (OECD 2009). Most governments have outlined their policy on improving the design of regulation and their approach to utilising tools, such as Regulatory Impact Analysis and stakeholder engagement mechanisms, and this is often supported by central scrutiny of proposed new regulation. As well as improving the design of new regulation, many member countries have searched for opportunities to remove unnecessary burdens on business and the community sector.

Good regulatory outcomes depend on more than well designed rules and regulations. This was recognised in the OECD’s Recommendation of the Council on Regulatory and Policy Governance (2012) which recommended that member countries: “Develop a consistent policy covering the role and functions of regulatory agencies in order to provide greater confidence that regulatory decisions are made on an objective, impartial and consistent basis, without conflict of interest, bias or improper influence.” (p. 4)

This draft OECD Best Practice Principles on the Governance of Regulators paper, is intended to assist members develop such a policy. It seeks to develop an overarching framework to support initiatives to drive further performance improvements across regulatory systems in relation to national regulatory bodies or agencies (regulators).

Efficient and effective regulators, with good regulatory practices, are needed to administer and enforce regulations. The comprehensive regulatory reviews of individual policy areas by governments frequently find that there is scope to enhance governance as part of broader initiatives to improve regulatory outcomes.2 It is clear that appropriate governance arrangements for regulators support improvements in regulatory practice over time, and strengthen the legitimacy of regulation.

Strengthening the governance of regulators will help to maintain the confidence and trust of those being regulated and the broader community (ANAO 2007). Good regulation helps to make OECD member countries healthier, cleaner, more prosperous and safer, while supporting innovative solutions to the challenges faced, and thereby serves the interests of all citizens.

Table of contents


Principles for the Governance of Regulators 1

Public Consultation draft 1

21 JUNE 2013 1

Foreword 2

Executive summary 4

Role clarity 8

1.Principles for role clarity 8

2.Objectives 8

3.Functions 8

4.Coordination 8

preventing undue influence and maintaining trust 9

5.Principles for the degree of independence 9

6.Independence 9

7.Maintaining trust 9

Decision-making and governing body structure
for independent regulators 10

8.Principles for decision-making and governing body structure for independent regulators 10

9.Decision-making model 10

10.Relationship between the responsible the Minister, governing body and the Chief Executive Officer 10

11.Membership of the governing body 12

Accountability and transparency 13

12.Principles for accountability and transparency 13

13.Accountability and performance 13

14.Transparency 13

15.Review of decisions 13

Engagement 14

16.Principles for engagement 14

17.Fit for purpose 14

18.Avoiding capture and conflicts of interest 14

Funding 15

19.Principles for funding 15

20.Supports outcomes efficiently 15

21.Regulatory cost recovery 15

22.Litigation and enforcement costs 15

23.Funding of external entities by a regulator 15

PERFORMANCE EVALUATION 16

24.Identifying the scope 16

25.Developing indicators 16

26.Use of performance evaluation 16

Introduction 17

27.Setting the scene 17

28.The scope of this document 18

29.Improving outcomes through better governance 22

30.Implementation 23

31.A focus on the ‘operate’ phase of regulation 24

32.Structure of this document 25

Chapter 1

Role clarity 28

33.Principles for role clarity 28

34.Objectives 28

35.Functions 28

36.Co-ordination 28

37.Objectives 30

38.Competing objectives 30

39.Functions 30

40.Conflicting functions 31

41.Competing functions 32

42.Regulators’ policy functions 33

43.Co-ordination 34

44.Objectives 35

45.Functions 35

46.Coordination 35

Chapter 2

Preventing undue influence and maintaining trust 37

47.Principles for the degree of independence 37

48.Independence 37

49.Maintaining trust 37

50.Defining undue influence 38

51.When is an independent regulator most appropriate? 40

1.there is a need for the regulator to be seen as independent, to maintain public confidence in the objectivity and impartiality of decisions; 40

52.both government and non-government entities are regulated under the same framework and competitive neutrality is therefore required; or 40

53.the decisions of the regulator can have a significant impact on particular interests and there is a need to protect its impartiality. 40

54.When is a Ministerial regulator more appropriate? 41

55.Allocating the power to make regulatory decisions 42

56.Maintaining trust in decision-making 43

57.Communication between ministers, ministries, and independent regulators 44

58.Independent regulatory decision-makers supported by Ministry staff 44

59.Framework agreement between independent regulatory decision-makers and Ministry 45

60.The terms of appointment for board members of independent regulators 46

61.Termination provisions for independent regulators 46

62.Pre-employment and post-separation activities of regulators 47

63.Independence 49

64.Ministerial regulators 49

65.Maintaining trust 49

Chapter 3

Decision-making and governing body structure
for independent regulators 51

66.Principles for decision-making and governing body structure 51

67.Decision-making model 51

68.Relationship between the responsible the accountable political authority, governing body and the Chief Executive Officer 51

69.Membership of the governing body 51

70.Governance structures 52

71.Decision-making model 52

72.Relationship between the responsible Minister, governing body and CEO 55

73.Membership of the governing body 55

74.Stakeholder representation 55

75.Ministry representation on the governing board 56

76.Technical expertise or industry knowledge 56

77.Selection processes for board members 57

78.Decision-making model 57

79.Relationship between the responsible Minister, governing body and CEO 58

80.Membership of the governing body 58

Chapter 4

Accountability and transparency 60

81.Principles for accountability and transparency 60

82.Accountability and performance 60

83.Transparency 60

84.Review of decisions 60

85.Accountability 60

86.Clear expectations 61

87.Accountability to the legislature 61

88.Transparency of operational policies 62

89.Review of decisions 62

90.Accountability 64

91.Transparency 64

92.Review of decisions 64

Chapter 5

Engagement 66

93.Principles for engagement 66

94.Fit for purpose 66

95.Avoiding capture and conflicts of interest 66

96.The relationship between engagement and governance 66

97.Regular, purposeful and fit for purpose engagement 67

98.Advisory bodies 67

99.Engagement policies and mechanisms 67

100.Avoiding capture and conflicts of interest 68

101.Fit for purpose engagement 68

102.Avoiding capture and conflicts of interest 68

Chapter 6

Funding 70

103.Principles for funding 70

104.Supports outcomes efficiently 70

105.Regulatory cost recovery 70

106.Litigation and enforcement costs 70

107.Funding of external entities by a regulator 70

108.Supports outcomes efficiently 70

109.Regulatory cost recovery 72

110.Budget funding 72

111.Financial transparency 73

112.Costs of major and unanticipated court actions 73

113.Funding of external entities by regulators 73

114.Supports outcomes efficiently 75

115.Regulatory cost recovery 75

116.Litigation and enforcement costs 75

117.Funding of external entities by regulators 75

Chapter 7

Performance evaluation 77

118.Principles for performance evaluation 77

119.Identifying the scope 77

120.Developing indicators 77

121.Use of performance evaluation 77

122.Performance indicators 77

123.Identifying the scope 78

124.Developing indicators 78

125.Use of performance evaluation 78

References 81

Annex 1

Call for information for country examples of arrangements for the governance of regulators 85



Glossary 90



Tables

Figure . Necessary elements of better regulatory outcomes 4

Figure . Governance arrangements of Regulators 20

Figure 3. Necessary elements of better regulatory outcomes 21

Table . OECD principles of good regulation 22

Figure . Regulatory integrity, independence and the institutional form 40

Table . Factors to consider in creating an independent and structurally separate regulatory body 41

Table . Factors to consider in creating a Ministerial based regulatory scheme 42

Table 1.1. Functions of regulators and co-operation 85

Table 2.1. Preventing undue influence 85

Table 3.1. Decision-making models and board membership 86

Table 4.1. Mechanisms to ensure accountability 86

Table 5.1. Forms of engagement 88

Table 6.1. Regulator funding arrangements 88

Table 7.1. Regulator performance evaluation 88




Figures

Figure . Necessary elements of better regulatory outcomes 4

Figure . Governance arrangements of Regulators 20

Figure 3. Necessary elements of better regulatory outcomes 21

Table . OECD principles of good regulation 22

Figure . Regulatory integrity, independence and the institutional form 40

Table . Factors to consider in creating an independent and structurally separate regulatory body 41

Table . Factors to consider in creating a Ministerial based regulatory scheme 42

Table 1.1. Functions of regulators and co-operation 85

Table 2.1. Preventing undue influence 85

Table 3.1. Decision-making models and board membership 86

Table 4.1. Mechanisms to ensure accountability 86

Table 5.1. Forms of engagement 88

Table 6.1. Regulator funding arrangements 88

Table 7.1. Regulator performance evaluation 88





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