1. Regulatory Impact Assessment for Better Regulation
Charles-Henri Montin
Policy Analyst
Regulatory Policy Division
OECD / Directorate for Public Governance and Territorial Development

2. Outline of the presentation
Presentation Outline
Outline of the presentation
The regulatory system
Why improve regulatory quality?
Regulatory Impact analysis: a fundamental tool to improve regulatory quality

3. Regulatory management
Improving Regulatory Quality: the Regulatory System
Regulatory management
Institutional arrangements
Regulatory Policy
Multi-level governance
Stock of regulations
Flow of regulations
Regulatory reform
Burden reduction
Administrative simplification
Coordination
Regulatory Impact
Analysis (RIA)

4. Why improve regulatory quality?
Improving Regulatory Quality: Rationale
Why improve regulatory quality?
Economic, social and distributional benefits
In a context of tight budgets, option less demanding than fiscal policy
Plays a central role in improving both citizen’s and investor confidence in a country
Engaging in regulatory reform to improve regulatory quality and establish permanent regulatory oversight has proven a highly effective option in the past
Most severe economic crisis in decades. Banking sector has now been stabilised and stimulus packages have had a significant impact…
… but have left countries with sizeable deficits - the OECD-wide budget deficit is projected to reach more than 8% of GDP in its highest level in 60 years. In the OECD as a whole, gross government debt is projected to exceed 100% of GDP in 2011, about 30 percentage points higher than in 2007
Countries need strategies such as regulatory reform that will stimulate sustainable growth without further increasing deficits
While regulatory reform should be maintained as continual and permanent process given ever-changing global economic conditions, it becomes a crucial strategy in a context where countries do not have much room left to stimulate the recovery through fiscal instruments

5. Case study example: Korea
Improving Regulatory Quality: Rationale
Case study example: Korea
crisis: GDP declined by 7.6% in Q1 1998, but recovered to pre-crisis levels by the end of Crisis caused by external shock, overleveraged and unprofitable corporate sector and lack of supervision of financial sector
At that time wide-ranging and ambitious program of reform, including the elimination of 50% of existing regulations
Impact difficult to quantify but evidence of increased FDI level, reduction in compliance costs (4.4 % of GDP) and administrative cost savings of $0.5 bn
Korea successfully handled Asian financial crisis and current crisis is less severe than before

6. Regulatory Impact Analysis (RIA)
Improving Regulatory Quality: RIA
Regulatory Impact Analysis (RIA)
Section Outline:
Context
Design and Process
Scope
Implementation
Elements

7. RIA: Context
What is RIA?
Systematic policy tool and decision process to examine and measure the likely benefits, costs and effects of new or existing regulation
In the OECD, used most often to manage the flow of regulation (US, Canada, UK, France, EU, etc.)
Role in the development, review and reform of regulations emphasized by the 1995, 1997 and 2005 OECD guiding principles and recommendations for regulatory quality and performance

8. RIA: Context
Why is RIA important?
Control the quality of regulation – a step in improving competitiveness
Evidence-based policy making
Improves transparency – both within Government and Civil Society
Simple language understandable for everyone and easily accessible

9. RIA: OECD Experience
Trend in RIA adoption by central governments across OECD countries ( )
As of 2008, all OECD countries require some form of Regulatory Impact Assessment (RIA). So now the question is not whether or not to adopt RIA, but how to improve RIA quality and better integrate RIA in the policy and regulatory planning process.

10. How does RIA work? The process of Regulatory Impact Analysis
RIA: Design and Process
How does RIA work?
The process of Regulatory Impact Analysis
Policy objectives
Definition
Identification
Regulatory Options
Assessment
Costs
Consultation
Involving Stakeholders
Design
Enforcement, Compliance and monitoring mechanisms
After RIA is prepared: DECISION MAKING
Policy context
Benefits
Selection
Best Option
Other impacts

11. How does RIA fit into the policy-making process?
RIA: Design and Process
How does RIA fit into the policy-making process?
POLICY MAKING PROCESS
Consultation
Analysis
Information
Discussion
Agreement
Policy Implementation
RIA

12. Primary or secondary legislation?
RIA: Scope
Primary or secondary legislation?
Less and less divergence among OECD countries
Primary legislation usually has more far reaching impact
Secondary regulation (decrees, bylaws) may set technical standards, adoption usually not that transparent
It may be easier to constrain delegated regulatory authority

13. Apply to all proposals or only major ones?
RIA: Scope
Apply to all proposals or only major ones?
Many countries have linked RIA requirements to the magnitude of potential impacts of proposals
Difficult to identify suitable threshold
Quantitative vs. qualitative thresholds
USA – annual costs exceeding $100 mil. Or more
Canada: $10 million or more
France: no threshold yet

14. RIA: Implementation
Institutional design
Dynamic process between the center and sectoral ministries regulators
System of checks and balances
Need for expertise in sectoral ministries/regulators, Division of tasks
Balance between political discretion and need for expertise, Timing
The variation in RIA systems: presidential vs parliamentary regimes

15. Common challenges Related to the tool:
RIA: Implementation
Common challenges
Related to the tool:
Problem identification, Consultation and data
Considering alternatives, “Proportionate analysis”
Quantification, Risk assessment
Related to the structure/process
Scope of application / selection of proposals
Quality control (oversight)
Presentation / Communication
Integrate RIA up-stream (early in decision-making)
Integrate RIA down-stream (“closing the loop”)
Training, Multi-level context

16. RIA: Implementation
OECD good practices (1)
1. Political commitment and endorsement at the highest levels
Legal basis for RIA
Clear ministerial accountability
2. Allocate responsibilities for the RIA programme
Operational responsibilities with the services
Inter-service coordination
Central quality oversight

17. OECD good practices (2) 3. Target and prioritise RIA efforts
RIA: Implementation
OECD good practices (2)
3. Target and prioritise RIA efforts
Scope of application / thresholds for when to do RIAs
Sectoral impacts
4. Develop comprehensive guidelines
Mandatory
Both on process and on technical aspects
5. Carry out sound analysis
Strategies for data collection
Consistent but flexible methodologies

18. OECD good practices (3) 6. Consultation / Transparency / Communication
RIA: Implementation
OECD good practices (3)
6. Consultation / Transparency / Communication
7. Training, training, training
8. Apply RIA to both new and existing regulation

19. Elements of RIA: Overview
RIA Elements
Elements of RIA: Overview
1. Problem definition
2. Selection of alternatives
3. Consultation
4. International Regulatory Coordination
5. Analysis of Costs and Benefits
6. Compliance / Enforcement
7. Post-Implementation Review and Evaluation

20. What is the problem? Is government action justified?
RIA Elements 1. Problem definition
What is the problem? Is government action justified?
Many regulatory failures stem from an ill-defined or too narrow problem
Countries have increasingly sought to justify government intervention
Problem / Objective setting is an essential step for effective performance measurement

21. Requirements of the RIA process
RIA Elements 2. Alternatives
Requirements of the RIA process
Clearly determine policy objectives
Case for regulation / Market failure / Policy goals
Consideration of full range of available alternatives
Regulatory / Non regulatory
Evaluate likely possibilities of success
Consider the role of government / characteristics of the sector
Discard unworkable proposals
Cost benefit analysis of alternatives
Identify the alternative with the highest net benefit

22. Assessment of alternative policy instruments OECD countries, 2008
RIA Elements 2. Alternatives
Assessment of alternative policy instruments OECD countries, 2008
Notes: Data presented for the 30 OECD member countries and the European Union.
Source: OECD Regulatory Management Systems’ Indicators Survey 2008,

23. Alternatives to what? Command and control regulation
RIA Elements 2. Alternatives
Alternatives to what? Command and control regulation
Prescriptive Black letter law
May not promote good regulation
Efficiency reducing
Dynamic/ allocative/ technical
Prevents innovation
Can create market distortions/ barriers
Potentially Ineffective
Costly to business and the government
May not ensure compliance
A product of habit?

24. What alternatives to consider?
RIA Elements 2. Alternatives
What alternatives to consider?
Regulatory alternatives
Performance based regulation / Co-regulation / Economic instruments - market incentives
Non regulatory alternatives
Voluntary codes / self regulation / information campaigns
Spectrum of regulatory instruments:

25. Performance based regulation
RIA Elements 2. Alternatives
Performance based regulation
Specifies outcomes or objectives and allows parties to choose means of compliance
Flexible, promotes innovation, lowers compliance costs
May create uncertainty, favor large companies, difficult to monitor compliance, detailed guidance can become de facto law
Use when rate of technical change is high, incentives for compliance are strong and a clear understanding of the problem to be addressed
Example of safety case regulation – duty of care requirement

26. RIA Elements 2. Alternatives
Co-regulation
The regulatory role is shared between government and an industry or occupational body which can enforce breaches of an industry code
Utilises expertise of the industry or professional association and promotes accountability
Reduces requirements for government resources
May raise barriers to entry and unintended monopoly power which may restrict competition
Best used when industry is strongly homogenous, professional independence is important and self enforcement is possible.
Example of legal and accounting professions

27. RIA Elements 2. Alternatives
Market incentives
Economic incentives can be used to modify behavior, for example through creating a market, taxing activities which generate negative externalities, or subsidizing positive activities
Can be less costly than regulation, promote flexibility, innovation and be largely self enforcing
Can be difficult to target and may generate unintended market distortions, structurally difficult to remove when no longer required
Useful when behavioral change is required across the community and sensitive to price signals
Examples of carbon tax, tradable permits, introduction of privatization and contestability

28. Voluntary codes / Self Regulation
RIA Elements 2. Alternatives
Voluntary codes / Self Regulation
Industry self regulation uses voluntary codes to describe the types of activities that they agree to comply with to ensure acceptable standards
Voluntary codes have no legal authority: compliance is achieved through the participants desire to uphold the reputation of the industry
Provides a market based solution to regulate ethical behavior – operationally practical
Relies on sufficient market power to deter non-compliance
Compliance may be low, can create barriers to entry
Examples of media code of ethics, supermarket code

29. RIA Elements 2. Alternatives
Negative Licensing
Individuals and business that have demonstrated past bad behavior are precluded from operating in a particular industry
Practical when governments seek to exclude persons with particular characteristics (eg criminals) rather than specify positive requirements
Relatively low cost, does not require registration
Exclusionary criteria may be difficult to specify and enforcement costs may be high
Examples of real estate sub agents

30. Information campaigns
RIA Elements 2. Alternatives
Information campaigns
An education program can be appropriate in cases where the market failure is an information problem. Depends on whether the target group can be identified and reached economically
Can be very light handed
May reduce costs of regulation and increase compliance
May be conducted by government or business
May not be successful in changing behavior
Examples of advertising the effects of speeding, smoking or exercise

31. Some criteria for assessing alternatives
RIA Elements 2. Alternatives
Some criteria for assessing alternatives
For all options, how does it rate on…
Effectiveness
Promote compliance and meet objectives?
Efficiency
Deliver a positive net benefit at lowest opportunity cost?
Equity and Fairness
Transparent, inclusive, promote competition?

32. Conclusion Case by case approach Clearly linked to policy objectives.
RIA Elements 2. Alternatives
Conclusion
Case by case approach
Consideration of characteristics of industry sector
Clearly linked to policy objectives.
Will it achieve its policy aims?
Incentives and institutional issues.
Do the approaches ‘work with’ existing incentives?
Can they be effectively monitored and enforced?
Evaluation of risks.
Likelihood and consequences of regulatory failure
Possibility for return to status quo
Be creative
Adapt to human behaviour, new technology, new tricks, opportunity for policy learning

33. Why consult? Valuable source of ideas and data
RIA Elements 3. Consultation
Why consult?
Valuable source of ideas and data
Intrinsic and instrumental value
Increased transparency (increased trust)
Draw upon collective intelligence of society: better outputs and outcomes at a lower cost
People are more likely to accept and comply with policies they feel they have shaped
Ensuring that regulatory processes take into consideration the views of all groups in society is a major challenge to governments
Participation of stakeholders in the regulatory process ensures that:
feedback about the design and effects of regulation is taken into account when developing the regulation
increases the likelihood of compliance by building legitimacy in regulatory proposals and may therefore improve the effect of regulation and reduce the cost of enforcement.
Hence, formalised consultation processes are an important feature of regulatory transparency and a key factor in strengthening regulatory management systems.
Consultation with stakeholder groups is one of the most cost-effective ways of obtaining data to support RIA. In addition, consultation helps to establish the legitimacy of regulation, by allowing people to raise concerns and participate in the regulatory process before regulation is implemented. This, in turn, can improve the extent of voluntary compliance with regulation.

34. Consultation is a central element of RIA
RIA Elements 3. Consultation
Consultation is a central element of RIA
Form of quality assurance
Means of ensuring data fully gathered and refining methodologies
gives affected parties the opportunity to identify and correct faulty assumptions and reasoning
Regulatory oversight bodies need to play a role in enhancing and refining consultation practices
Consultation is a key pillar of good regulation, and mandated by the Regional Charter
RIA should always be integrated with public consultation as it provides better information to underpin the analysis and gives affected parties the opportunity to identify and correct faulty assumptions and reasoning.

35. Why coordinate? Collaborative identification of a regulatory agenda
RIA Elements 4. International Regulatory Coordination
Why coordinate?
Collaborative identification of a regulatory agenda
Increasing integration of international markets magnifies the salience of global systemic risks

36. Benefit-Cost Analysis (BCA)
RIA Elements 5. Costs and Benefits
Benefit-Cost Analysis (BCA)
OECD recommends that the BCA should be used where feasible in conducting RIA
BCA, when applied appropriately in the regulatory context, attempts to take account of the full range of impacts, including environmental and social impacts, as well as economic impacts.
Should serve as a basis for decision-making (choose the option that maximises net benefits)
Benefit-Cost Analysis is a general framework and process to weigh the total expected costs against the total expected benefits of one or more actions in order to choose the best option. In the regulatory context, this is the option that maximises net benefits.
Typically BCAs are published separately, and a summary is presented in the RIA. The same BCA can be conducted as an underpinning for a large number of regulatory initiatives, and updated as necessary.

37. RIA Elements 5. Costs and Benefits: OECD
RIA Requirements: Analysis of Costs, Benefits and Public Accessibility in OECD countries (2005 and 2008)
While a majority of OECD countries require that the benefits and costs of new regulation be identified in regulatory impact assessments, a much lower proportion require that these costs and benefits be quantified and publicly released.
There is scope for improvement in this area and the importance of effectively communicating the benefits of reform should not be overlooked. Effective communication requires broad efforts towards advocacy, clearly highlighting the rationale for reform strategies, and engaging in the public debate to win constituencies and stakeholders.
New initiatives for open government and web-based consultation and communication are also likely to transform the relationship between the regulators and the regulated, making regulation user-centred.
Note: This figure is based on country responses to the OECD Survey of regulatory management systems conducted in 2005 and Each column is the sum of country responses “always” and “for major regulations only”. Source: OECD Regulatory Management Systems’ Indicators Survey 1998, 2005 and 2008,

38. Compliance and enforcement
RIA Elements 6. Compliance and Enforcement
Compliance and enforcement
OECD 2005 principles: regulations should be efficiently applied with non-discriminatory and transparent procedures for enforcing regulations and with fair appeal processes
Achieving a high level of compliance is a key factor in the effectiveness of regulations.
How to influence the awareness, willingness and ability of regulated groups to comply?
One way in which countries have promoted the rigour of regulatory quality initiatives is to allow for regulations to be challenged if requirements with respect to RIA or consultation are not met.
To illustrate, the Spanish Supreme Court has established that if consultation procedures have not been met, the law/royal decree can be invalidated.
In the United States the Administrative Procedure Act (APA) of also provides such a possibility: it requires that agencies go through a notice and comment process open to all members of the public. The information in the public record, including the RIA, and agencies‟ use of this information are used by the courts in settling any challenges to regulation brought by the public. In
In Luxembourg, if a professional chamber has not been consulted according to process requirements for subordinate legislation, the regulation is considered invalid.

39. Compliance and enforcement issues, 2005 and 2008
RIA Elements 6. Compliance and Enforcement: OECD
Compliance and enforcement issues, 2005 and 2008
Requirements for compliance and enforcement issues were specifically required to be considered when developing new regulations in more than two thirds of the countries in 2008, an increase over the last years
About half of the OECD countries now have specific policies on compliance friendly regulation and have produced written guidance on compliance and enforcement issues for use by regulators
While most countries have some form of a requirement to consider compliance and enforcement issues when developing new regulation, guidelines in this area and policies on risk based enforcement are less common, though growing in number
This may be partly explained by the fact that those responsible for designing regulatory policies are not themselves regulators, and therefore may be more preoccupied by designing regulations and defining regulatory options than enforcing them. Enforcement tends to be left to individual departments and Ministries, and methods vary. This is an area that needs to be reinforced; after all, what good can a perfectly designed regulation do if it is not properly enforced?
Notes: Data for 2005 and 2008 are presented for the 30 OECD member countries and the European Union.
(*) No data are available prior to 2008.
Source: OECD Regulatory Management Systems’ Indicators Survey 2005 and

40. Performance measurement & evaluation
RIA Elements 7. Post-implementation Review
Performance measurement & evaluation
Develop standardised evaluation techniques or criteria
Report on performance
Review / Repeal regulation if necessary
Automatic reviewing or repealing clauses may be considered, such as sunsetting

41. Regulatory review and evaluation in OECD countries 1998, 2005 and 2008
RIA Elements 7. Post-implementation Review
Regulatory review and evaluation in OECD countries 1998, 2005 and 2008
More and more countries have been adopting mechanisms for regulatory review and evaluation over the last decade
Most OECD member countries now have mandatory periodic evaluation of existing regulation, automatic review requirements for specific primary laws and mechanisms by which the public can make recommendations to modify existing regulation. Sunsetting clauses are less popular, though still growing.
An example of ex post evaluation and update can be found in Korea. In Korea, any citizen or business can make suggestions and demand regulatory improvements on all Korean regulations on the website of the Regulatory Reform Committee
Notes: Data for 1998 are not available for the European Union, Luxembourg, Poland and the Slovak Republic.
This means that this figure is based on data for 27 countries in 1998 and for 30 countries and the EU in 2005/2008.
(*) No data are available prior to 2005.
Source: OECD Regulatory Management Systems’ Indicators Survey 1998, 2005 and 2008,

42. For more information: Reading List
OECD country reviews on regulatory reform are available at
OECD (2002), Regulatory Policies in OECD Countries: From Interventionism to Regulatory Governance
OECD (2006), Alternatives to Traditional Regulation
OECD (2008), Building an Institutional Framework for Regulatory Impact Analysis (RIA): Guidance for Policy Makers
OECD (2009), Better Regulation in Europe: An Assessment of Regulatory Capacity in 15 Member States of the European Union
OECD (2009), Regulatory Impact Analysis: A Tool for Policy Coherence

43. Thank you for your attention!
Charles-Henri Montin
Policy Analyst
Regulatory Policy Division
OECD / Directorate for Public Governance and Territorial Development