PRINCIPLES OF GOOD REGULATION
This paper summarises some important areas highlighted
in the Better Regulation Guide as contributing to good regulatory
practice. A review of the framework proposed in the draft Financial
Services and Markets Bill in the light of the Better Regulation
Task Force's "Principles of Good Regulation" is particularly
appropriate given the recent publication by the Cabinet Office
of the Better Regulation Guidewith the Prime Minister's
Forewordand the Task Force's 1997-98 Annual Report.
The Task Force has established five key principles
for good regulation: transparency, accountability, targeting,
consistency and proportionality. The objective is to ensure that
Regulations are necessary, fair, effective and balanced, and that
they enjoy a broad degree of public confidence. In particular,
Regulations should be properly targeted and clearly defined, and
must balance risk, cost and practical benefit ("it is not
practical for regulators to seek to exclude all risk. . . fit
the remedy to the risk . . . only regulate where you need to .
. . "). A copy of the Task Force's effectiveness tests is
attached (not printed).
The Better Regulation Guide, published on 10
August, requires Departments to use Regulatory Impact Assessments
whenever new legislation or consultation papers on regulatory
proposals are published.
The Assessments should include a clear statement
of the objectives of the regulatory proposal and its likely effects,
and an Assessment should demonstrate that the proposal envisaged
is the most effective means of meeting the stated objectives,
set out the benefitsand costsof the proposal, and
identify who will be affected (although the Guide notes that the
process will not necessarily follow a set pattern). Long term
economic benefits and the international dimension should also
be considered, as should the danger that a particular rule could
give rise to an unintended or perverse result (for example, prohibiting
a product could lead consumers to switch to substitutes which
pose equalor even greater-risks). In particular, the Assessment
should contain an explanation of why non-regulatory action, such
as a code of conduct, would be insufficient.
The Guide discusses drafting, consultation,
implementation and achieving compliance, and it gives guidance
on reviewing and monitoring. Particular points made in the Guide
The need to avoid Regulations which
cause disruption to markets and trade.
Those being regulated must understand
their obligations and there are important costs implications for
businesses if requirements are uncertain (although the Guide also
stresses the need to avoid overly prescriptive rules and to consider
The importance of regulation being
clear and legally certain ("be predictable, people should
know where they stand").
The importance of focusing on achieving
compliance rather than just punishing breaches ("make sure
the system . . . is designed to bring about compliance, not just
to generate enforcement activity . . . Consider compliance through
self assessment, i.e., give affected persons an enforceable right
to challenge the businesses' compliance. . .": also see below
on Enforcement more generally).
The importance of regulation being
properly targeted and not "scatter gun" or universal
("define the exact nature of the problem . . . and match
regulation to it as closely as you can . . . Regulation should
focus on the problem and minimise side effects . . .").
The importance of consultationwhich
is a key element in accountability: adequate time for consultation
should be allowed and feedback provided to consultees (in particular,
Assessments should be available on request to interested parties,
and should be sent automatically to those who helped in
The production of consolidated Regulations:
if a new Regulation overlaps with another measure, thought should
be given to introducing a combined and streamlined regulation.
Transitional phasing-in periods should
Regulations must continue to be relevant:
thus, prior to the implementation of a Regulation, the establishment
of a procedure for assessing and monitoring the efficacy of the
measure should be devised. (Annex 4 of the Guide provides advice
on reviewing Regulations.) As part of this process clear regulatory
objectives are needed.
The potential benefits of self-regulation
should be considered (on this the Task Force is undertaking further
The benefits of enhancing consumer
choice and understanding through information disclosure should
be considered (although the costs for businesses of disclosure
should also be borne in mind).
Unnecessary gold plating of international
requirements should be avoided.
In addition, Annex 3 of the Guide sets
out Principles of Good Enforcement. The Government wishes
the principles and procedures to be followed by all appropriate
enforcement authorities. The Guide stresses that adherence to
these principles should benefit business by reducing the uncertainty
of firms about whether they are getting it right, by cutting the
overall cost of complying with Regulations, and by assuring businesses
that they are competing with one another on level terms.
The Guide stresses, in particular, that helping
business to comply in the most effective way should be a key aim.
The Guide says that this cannot be achieved solely by detection
and punishment of breaches, and neither should enforcement and
sanctions be so strict that they effectively discourage those
who are being regulated from performing legitimate activities
or force themthrough fear or uncertaintyto go to
unnecessary lengths to comply. The sanctions regime should be
proportionate, fair and effective.
The enforcement principles set out in the Guide
Proportionality and consistency:
the cost of compliance for business should be minimised by ensuring
that any action required is proportionate to the risks. The regulator/authority
should carry out its duties in a fair, equitable and consistent
manner and, as far as the law allows, it should take account of
the circumstances of the case and the attitude of the operator
when considering action. Before formal enforcement action is taken,
officers should provide an opportunity to discuss the circumstances
of the case and, if possible, resolve points of difference (unless
immediate action is required, for example in order to protect
Information and advice in plain language
on the rules that are being applied should be provided, and the
authority should be open about how it sets about its work. It
should take particular care to work with small businesses so that
they can meet their legal obligations without unnecessary expense.
The authority should encourage business
to seek advice/information, because prevention is better than
cure, and it should clearly distinguish best practice advice from
The need for clear enforcement standards,
setting out the level of service performance that the public and
business can expect to receive, should be drawn up in consultation
with business and other relevant interested parties, and should
be published: those being regulated should know what to expect
from the enforcing authorities.
24 In his Foreword the Prime Minister states that "no
regulatory proposal which has an impact on businesses . . . should
be considered by the Government without a thorough assessment
of the risks, costs and benefits, a clear analysis of who will
be affected and an explanation of why non-regulatory action would
be insufficient. This requirement applies whenever Ministers or
their officials are seeking to clear a new proposal for legislation.
Without a prior assessment of the kind described in this Guide,
clearance for such proposals will not be given". Back
The Guide states that where regulation is goal-based, it may help
to provide certainty if details are set out of how those affected
can comply, while leaving it open to them to find acceptable alternatives. Back