2 Undertaking Regulatory Impact Analysis (continued)
2.8 Implementation
Choices around the implementation and enforcement of a regulatory option can have a major influence on expected compliance rates and whether the expected costs and benefits will materialise (ie,the likely effectiveness of the regulation). Sometimes a lot of costs can be incurred during the implementation stage (such as the costs of monitoring and data collection) so key parameters should be included in the analysis of the costs and benefits of options.
The appropriate level of analysis of implementation will depend on the stage of the policy development process. However, it is important to consider some practical implementation issues before key policy and design choices are taken. These include:
- Administration issues, such as which agency will administer the option and how it will function.
- The information that regulated parties will require in order to comply with the regulation, and how this will be provided (eg, whether there is opportunity to rationalise or “piggyback” on existing information sources/methods of communication).
- Timing and transitional arrangements eg, delayed or gradual introduction of new requirements, provision of interim assistance.
- Enforcement strategy - how compliance will be enforced, who will undertake this, whether there will be sanctions for non-compliance (eg, warnings, fines, licence suspension, prosecution, and whether there will be gradations of sanction depending on the level/severity of breach), the suitability of risk-based enforcement strategies.
The impact of different choices around enforcement strategy on costs and benefits (expected compliance and hence effectiveness of the option) should be included in the options analysis. Consideration should also be given as to how these enforcement costs will be funded.
2.8.1 Minimising compliance costs
The compliance costs of each option will have been assessed during the course of the impact analysis. Consideration should be given to ways in which compliance costs may be reduced or minimised. There may be trade-offs between compliance costs and the administrative costs to government, and these should be explicitly identified (eg, greater flexibility in the ways business can comply with the regulatory requirements may minimise costs to firms, but may increase the costs of administering the regulation). Information on business compliance costs is provided on MED's website.
2.8.2 Implementation risk assessment
Key implementation risks and their potential impact on the effectiveness of an option should be identified. Strategies for mitigating these risks should be explained.
The importance of implementation
The prevailing view has been that the implementation of legislation is “something that regulators do”, once the law is passed. This view is changing, as we increasingly recognise that how regulation works in practice has as much to do with factors that influence implementation as the law itself, and these factors can and should be taken into account in the policy development process and regulatory impact analysis.
There are two distinct phases to implementation:
- the initial phase when a new law is introduced, and
- the ongoing administration and review of the law.
The initial phase has distinct characteristics as it is at this point that historical behaviours are required to change in line with the expectations underlying the law. Behaviours are a function of both attitudes and capabilities. In addition, it is often the case that the behaviours of more than one group need to change. Experience suggests that the behaviours that must change to achieve the objectives of the law are often path dependent and can be deeply embedded, and we typically under-estimate the effort required to effect change. Therefore, we need to allow sufficient time for implementation, to adopt appropriate strategies to facilitate and manage the change process, and undertake sufficient ongoing monitoring and evaluation.
The questions that should be asked at the outset include:
- What groups will be affected by this law (this will bear on the analysis of the status quo; key groups include producers, consumers, regulators, standards bodies etc)?
- What behaviours would we expect these groups to demonstrate if the law is to achieve its intended objectives? Bear in mind that actors respond to their “complete” regulatory environment, which may involve other areas of regulation and legislation than the policy question at hand.
- What might act as a barrier to behavioural change? Put yourself in the shoes of the affected parties – what incentives are in place to influence their behaviours?
- What strategies are likely to work best during the implementation phase to reduce these barriers? This will include consideration of appropriate transition arrangements.
- What monitoring and evaluation strategy is required to identify and address emerging issues that are affecting the effective implementation of the law?
When considering the factors that influence the administration of the law on an ongoing basis, it is important to note that interventions that do not deliver on their intended objectives may reflect poor strategy choice by the regulator rather than the rules themselves. There are two key factors to consider in the analysis.
First, regulators are always in the situation of allocating limited resources. In effect they must make hard choices about where to invest their regulatory capability. Risk-based frameworks are most commonly used today to make resource allocation decisions. In effect these require regulators to make an assessment of the likelihood and consequences of certain adverse events happening, relative to the cost of mitigating them, and use this information to prioritise activity. Dealing with uncertainty is an important dimension of risk-based regulatory action. The second factor is that regulated entities are not homogenous, and a strategy that works best for one group may not be effective or necessary for another.
Given these two factors, in addition to revisiting the factors and question outlined above, the questions we should also ask at the outset include:
- Does the proposed law permit risk-based decision making by the regulator?
- Can we be assured that the regulator will take a risk-based approach?
- Does the regulator have the statutory tools to take a “fit for purpose” approach to enforcement?
- Can we be assured that the regulator will take a “fit for purpose” approach?
2.9 Monitoring, evaluation and review
It is important that new policies (including regulation) are monitored and evaluated, to ensure they are working as expected (delivering the anticipated benefits at expected costs), that there have been no unforeseen consequences and they continue to be necessary as circumstances change and evolve.
When new regulatory options are being proposed, it is important to have a clear understanding of the channels through which the intervention will generate the intended benefits. Analysis needs to consider how effectiveness will be measured: what indicators will be used; what data will be required; how this information will be collected and by whom. As noted above, monitoring and evaluation involves costs, which should be factored in to the analysis of options.
On-going or periodic consultation with stakeholders may be appropriate, in which case the arrangements for this should be agreed. It may be appropriate to establish a feedback mechanism (eg, a way for stakeholders to ask questions or lodge complaints). Regular, public reporting on the effectiveness of the regulation may also be considered.
Plans should be made for how and when the regulation will be reviewed, and reviews should consider the following issues:
- Is there still a problem (and is it the one originally identified)?
- Are the objectives being met?
- Are the impacts as expected? Are there any unforeseen problems? Are there any indirect effects that were not anticipated?
- Is intervention still required? Is the current intervention still the most appropriate, or would another measure be more suitable?
