Exploring issues about regulation: reflections on the management of regulatory systems

Taking a whole of system approach is a key aspect of successful management of regulatory systems. This article suggests it is not happening as effectively as it might and it is time for a revised approach.

The framework for management of regulatory systems in New Zealand

The management of regulatory systems in New Zealand happens within the Regulatory Management System (RMS), described as:

“…the set of policies, institutions, processes and tools employed by central government to pursue and maintain good quality regulation[i].”

The Treasury manages the RMS. Essentially; it is a framework for governance of the meta-system of regulation in New Zealand. The meta-system incorporates a series of regulatory systems – examples include what the Ministry of Business, Innovation and Employment refers to as the ‘consumer and commercial system’ and the ‘health and safety system’; and what the Department of Internal Affairs refers to as the ‘anti-money laundering system’ and the ‘gambling system’, to name just a few.

Key features of the RMS include:

  • Regulatory stewardship expectations which require agencies to adopt a whole of system approach to a regulatory system, which relies on taking a proactive and collaborative approach to the care of the regulatory system(s) including taking an integrated approach to regulatory design, implementation, monitoring and review.
  • Government expectations of good regulatory practice which give agencies broad guidance on how they discharge their regulatory stewardship obligations
  • Regulatory impact analysis processes which is a systematic approach to policy analysis that involves regulatory options and considers the costs and benefits of those options
  • Regulatory stewardship strategies and plans which contain information on an agencies approach to regulatory stewardship, the condition of regulatory systems they work with and prioritised plans for improving those systems 
  • Departmental disclosure statements which are intended to provide factual information about the policy background, development, and key features of the proposed legislation.

The New Zealand Productivity Commission’s 2014 review of Regulatory Institutions and Practices has influenced developments in the RMS. A core issue identified by the commission was the prevalence of a “set and forget” approach to regulation, noting:

“the regulatory system isn’t flexible enough. We have a ‘set and forget’ mentality… until something goes badly wrong. Government spends a lot of time thinking about new regulations, but not nearly enough about how effective and necessary the existing stock of regulation is.”

The RMS’ underlying premise is that regulatory systems are assets that need care over time. The RMS intends to set in place a way of maintaining the quality of the numerous regulatory systems that operate in New Zealand, and act as an antidote to the “set and forget” mentality.  The current fragmented methods of assessment, monitoring and review of regulatory systems reduce the likelihood these intentions will be met.

The current practice of regulatory systems management

Institutional design

Before describing the current practice of regulatory systems management, it is worth reflecting on the organisational structures that deliver regulatory policy, regulatory stewardship activities and operations.

In short, two models exist – integration or separation between policy and the ownership of stewardship strategies and plans, and operations. 

Integration in one organisation

  • The same ministry or department owns the policy, stewardship strategies and action plans, and operations (for example, gambling regulation in the Department of Internal Affairs or immigration regulation in the Ministry of Business, Innovation and Employment).

Separation between organisations

  • A ministry or department owns the policy and stewardship strategies and plans, and operations are in a crown entity or independent board of some form.  There are three forms of crown entity with varying degrees of independence from government – crown agents (like Maritime NZ, with policy in the Ministry of Transport), autonomous crown entities (like the Broadcasting Commission, with policy etc. in the Ministry of Culture and Heritage), independent crown entities (like the Privacy Commission, with policy etc. in the Ministry of Justice).  There are various forms of independent boards (like the Plumbers Drainlayers and Gasfitters Board, with policy etc. in the Ministry of Business, Innovation and Employment).

A fragmented approach

The approach to regulatory systems management is fragmented and has features that raise questions about its efficacy.  Features include:

  • Ministries and departments (whether they have integrated responsibility or not) are responsible for defining the scope of the regulatory system for the purpose of review, and self-reporting on the quality and plans for improvement of that regulatory system. Defining the scope of the system is important. It sets the boundaries for assessment.  It can potentially be attractive to define a scope that reflects things that the agency has control and influence over, or the statutory frameworks the agency administers.  This can potentially drive a definition of system scope that is not reflective of the totality of the system and its intended outcomes, given that the majority of systems have more than one statutory framework and agency involved (sometimes multiple policy and operational agencies operating in respect to various statutes may contribute to delivering outcomes within a regulatory system). 
  • The assessment tools ministries and departments use may or may not be consistent with those used by other agencies to do similar work (note that in June 2019 Treasury reported that departments have started to assess the fitness-for-purpose of their regulatory systems using common dimensions of effectiveness, efficiency, durability and resilience, and fairness and accountability).
  • Self-reporting of weaknesses and problems may potentially be difficult as it could reflect on the performance of the agency, undermine confidence and damage reputation.
  • There is apparently a difference between the way monitoring of regulatory systems occur. In the integrated model agencies undertake policy development, stewardship strategies and plans, and operational delivery and then self-report.  Where the regulatory system has a separate Crown Entity or Board carrying out the operational delivery, specific monitoring activities occur, also carried out by the agency responsible for the policy development (and then for self-reporting on the quality of the regulatory system as a whole as part of their stewardship strategy and plan work). 
  • People separate to those responsible for the policy work often carry out this monitoring. They may or may not have regulatory knowledge and experience.
  • There is a much stronger focus on assessment of agency performance, compared to regulatory system performance, in regulatory systems where there are separate operational agencies.  This is in addition to those operational agencies being already subject to the same system wide accountability requirements that apply to the policy and operational functions in integrated agencies, as well as having a governance Board. If there is a need for greater focus on the performance of those responsible for activity within regulatory systems, surely, this applies across the board – problems with the design and implementation of regulatory systems occur across organisational forms.
  • The monitoring activity rarely ‘looks back’ into the policy and regulatory framework issues that might be affecting the ability of the operational agency to do its work well. Consider this against the background that the performance of operational regulators relates directly to ‘fit for purpose’ nature of the regulatory frameworks they give effect to. These frameworks are often out of date. Policy functions (in the agencies that monitor them) are often challenged by other priorities (see reference above to the “set and forget” approach) and do not keep them up to date.
  • Sometimes, in the view of the operational team or agency, the basic design of the frameworks undermines effective operational (compliance) activity and therefore system performance.
  • It seems likely that under the current approach the level of monitoring (with the weighting towards organisational performance compared to regulatory system performance) will increase following the review of the New Zealand Transport Agency where the quality of monitoring was in question.

The above points indicate that there are different arrangements for executing the RMS. On the face of it, there are questions about it delivering the whole-of-system effects intended. 

In addition, there is a reasonable chance of conflicts of interest in respect to the clear identification of responsibility and accountability for poor performance of a regulatory system if an agency is responsible for:

  • Policy development and operational delivery in the system, plus the  
  • Regulatory stewardship strategy and plans, and self-reporting or
  • Policy development, plus the monitoring of the operational function, and the regulatory stewardship strategies and plans, and self-reporting.  In this latter situation, it is potentially challenging for an agency to see clearly its own contribution to the success or otherwise of another agency that it is monitoring in respect to operational delivery within the same system.

Conclusion

Good quality regulatory system design and implementation is critical to New Zealand’s well-being.   In addition, expectations regarding the performance of regulatory systems, and challenges posed by rapid technological change are at an all-time high. 

The intention of the RMS is to support a whole of system approach in order to understand the performance of regulatory systems individually, and the meta-system overall – ensuring fitness for purpose and avoidance of regulatory failure. If regulatory failure does occur, a whole of system approach is necessary to understand fully the reasons for that and create the best opportunity for lasting improvement in the particular system, as well as at the meta-system level.

The current method of implementation of the RMS occurs suggests the management of regulatory systems may not be happening in a way that creates the best opportunities for improvement at the system or meta-system level. Perhaps it is time to rethink the way the RMS is implemented.

What are the alternatives?

Before considering alternatives, it is worth looking at what else is in place at present.  In addition to the RMS:

  • There is the Performance Improvement Framework model that contributes to regulatory stewardship, but the focus on regulatory systems is through the organisational lens more than the system lens and its only one component of the review.  It does have the advantage of being independent of the agency being subject to the review though.
  • There is a fledgling peer learning process under the umbrella of the Government Regulatory Practice Initiative.  The agency inviting the peer learning process scopes and drives this but it does involve a range of external senior practitioners in providing expert views.  Early indications are that this process will add a lot of value for the agencies seeking the peer learning and the practitioners who engage in it. However, it also has limitations if thought of in respect to the breadth and depth of consideration of regulatory systems that the RMS intends.

In summary, the current implementation of the RMS, even with other initiatives such as the PIF and peer learning, is not delivering the whole of system focus required to support the ongoing improvement of regulatory systems and the meta-system of regulation in New Zealand.

A new approach

The introduction of a specialist regulatory meta-system monitoring agency that can work alongside the Treasury and operate independently to scope, assess and advise on the quality of regulatory systems needs serious consideration. This could:

  • Remove possible conflicts of interest
  • Accelerate and ensure over time the development of a consistent approach to the assessment of regulatory systems, made according to system scopes that are developed without constraints that may be consciously or unconsciously imposed by organisational scope
  • Provide a centre of excellence for regulatory system assessment that would support the development of a comprehensive view of the performance of New Zealand’s regulatory meta-system overall (that would likely be superior to one developed from a series of self analysed and reported system stewardship strategies and plans, as is the case at present).
  • Enable broader and faster learning and improvement in the approach taken to regulatory system design and implementation in New Zealand
  • Create a stronger possibility of avoiding repeated regulatory failures involving similar issues and themes.          

It would be consistent with the centralised approach to the monitoring of state owned enterprises to protect the value of the Crown’s commercial interests. Why not apply a similar approach to enhance the value of our regulatory systems, which are also a significant asset?

Got any comments or questions?  Feel free to raise them by commenting on this article.

Keith Manch, October 2019

Note: This article draws on 43 years’ experience working in two departments, two ministries and three Crown Entities – including experience of monitoring Crown Entities, and long engagement in the development of system wide regulatory practice capability. It is not directed at any particular agencies.

This post was written by Keith Manch, the Chief Executive and Director of Maritime New Zealand. He has worked in the public sector since 1977 and brings extensive leadership experience in a number of policy and operational senior leadership positions in regulation, compliance and response.


[i] This article assumes that the reference to maintaining ‘good quality regulation’ incorporates the design (policy), implementation (operations) and review of that regulation – thus it refers to regulatory strategy, policy, frameworks (laws, regulations, rules etc.), delivery (the full range of compliance activity which includes information, guidance and enforcement) and review. 

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