1. C.H. Montin, Ankara 12 May 2014 11 Ankara, 12 May 2014 Further techniques to improve the design of legislation Charles-Henri Montin, Smart Regulation Consultant Former Senior Regulatory Expert, Ministry of economy and finance, Paris http://smartregulation.net For the full presentation (19 slides), contact speaker

2. C.H. Montin, Ankara 12 May 2014 2 Contents: three more tools  Considering “alternatives to regulation” during the policy making phase  Introducing risk management into regulatory design  Conducting International Regulatory Cooperation

3. C.H. Montin, Ankara 12 May 2014 3 ALTERNATIVES TO REGULATION Why explore alternatives to regulation ?  the first response by governments to a perceived policy issue is often to regulate, but it may be appropriate to ask whether traditional regulation is the best possible course of action. In many situations there may be a range of optional policy instruments other than traditional ’command and control’ regulation available.

4. C.H. Montin, Ankara 12 May 2014 4 A range of options

5. C.H. Montin, Ankara 12 May 2014 5 Alternatives in the policy making process  OECD 1995 checklist recommends carrying out “an informed comparison of a variety of regulatory and non-regulatory policy instruments, considering relevant issues such as costs, benefits, distributional effects and administrative requirements".  RIA procedure includes a phase of checking the impact of alternatives, to regulate when it is the only effective solution.

6. C.H. Montin, Ankara 12 May 2014 6 Pros and cons of alternatives  Smaller corpus of legislation  Assist simplification drive  Lower administrative burdens  Better knowledge of factual situation (sometimes)  Lack of knowledge and practice of A.  Difficult to measure impacts of A.  Symbolic value and credit of regulation (authority)  Risk to uniform implementation  Bureaucratic obstacles  Fear of uncertainty of rules made by others

7. C.H. Montin, Ankara 12 May 2014 7 Practice of alternatives  The use of A. must be a component of the explicit regulatory policy  Need for research into foreign best practices likely to succeed in the country  Emphasis on avoiding excessive regulation focused on economic sectors; systematically include alternatives in RIA process  Sensitise industry sectors to potential of standards  Need for a change of culture in the policy making circles of government

8. C.H. Montin, Ankara 12 May 2014 8 RISK AND REGULATION Some concepts  Risk: a combination of probability of a hazard and magnitude of consequences  Hazard: situation that could lead to harm  Risk analysis  Precautionary principle  Administrative certainty and security  Risk management  Risk based regulation

9. C.H. Montin, Ankara 12 May 2014 9 Definition of risk based regulation Range of meanings (1) Regulation of risks to society (2) Loose collection of approaches expressed terms of risk (3) In banking and insurance regulation, the use of firm’s own internal risk models to set capital requirements (4) Systematised decision making frameworks and procedures to prioritise regulatory activities and deploy resources, principally relating to inspection and enforcement, based on an assessment of the risks that regulated firms pose to the regulator’s objectives Definition (4) is that used here

10. C.H. Montin, Ankara 12 May 2014 10 Key issues in design  Approaches taken to risk tolerance  The choice between objective and subjective indicators  The relative roles of impact and probability  The role of weighting  Integrating broader external risks with firm level risk assessments  Dealing with ‘bulge’ –the low risk firms which are usually the majority of the regulated population

11. C.H. Montin, Ankara 12 May 2014 11 Lessons from OECD experiences

12. C.H. Montin, Ankara 12 May 2014 12 The risk cycle in policy making

13. C.H. Montin, Ankara 12 May 2014 13 Main elements of risk based regulation  Setting the risk tolerance  Risk identification and risk assessment  Assigning scores and ranking firms or sites  Linking supervisory resources and responses to the risk scores.

14. C.H. Montin, Ankara 12 May 2014 14 International regulatory cooperation (IRC  Definition: any agreement or organisational arrangement, formal or informal, between regulators (at the bilateral, regional or multilateral level) to promote cooperation in the design, monitoring, enforcement of ex-post management of regulation. Goes beyond adherence to international legal obligations. Can use non- binding instruments  Enshrined in principle 12 of OECD 2012 Recommendation  Best practice: US, Canada

15. C.H. Montin, Ankara 12 May 2014 15 11 varieties of IRC

16. C.H. Montin, Ankara 12 May 2014 16 Practicing IRC  Research into foreign regulatory solutions, with emphasis on neighbouring countries  Networking, including personal contacts, with colleagues with same mission in other countries  Formal cadre for conducting cooperation can be required  Bringing the right spirit to sharing experiences and solutions  Filtering IRC feedback into national regulation for convergence or harmonisation  Particularly useful for business related regulation

17. C.H. Montin, Ankara 12 May 2014 17 To continue the study…  Alternatives: http://www.oecd.org/gov/regulatory- policy/42245468.pdfhttp://www.oecd.org/gov/regulatory- policy/42245468.pdf  Risk: http://www.oecd.org/gov/regulatory- policy/riskandregulatorypolicy.htmhttp://www.oecd.org/gov/regulatory- policy/riskandregulatorypolicy.htm  IRC: http://www.oecd.org/gov/regulatory- policy/irc.htmhttp://www.oecd.org/gov/regulatory- policy/irc.htm  Further questions contact: montin @ smartregulation.net