Publications

Last 12th June, the OECD launched a consultation on its “best practice principles” on regulatory impact assessment (RIA). The paper extends and elaborates the 2012 “Recommendation of the Council on Regulatory Policy and Governance”, with the aim of providing member countries with a practical instrument to better design RIA systems. Although not particularly innovative in content, the “principles” outline some of the most recent trends in the international debate over RIA, such as a focus on governance issues and on the evaluation of non-economic impacts. (Siriana Salvi, Rassegna Osservatorio AIR, n. 4/2019)

Almost a decade after the OECD reviewed the better regulation practices in 15 EU countries, this report presents an up-to-date analysis of the use of core regulatory policy tools across all 28 EU Member States and the European Union. In 2017, both the European Union and EU Member States show a strong overall political commitment to regulatory reform. All EU Member States have adopted regulatory policies promoting government-wide regulatory reform, covering various areas of regulatory governance. Regulatory policy in the European Union progressed under the better regulation agenda, which played a crucial role in shaping the current Commission’s regulatory processes. For the first time, the OECD has assessed stakeholder engagement, regulatory impact assessment (RIA), and ex post evaluation systematically across all EU countries and the European Union, drawing on its composite indicators of regulatory policy and governance. EU countries have, on average, invested less across the three assessed areas than non EU countries. The difference is particularly striking for the area of ex post evaluation, indicating that EU Member States have yet to develop effective systems to review existing regulations. While therefore more progress is needed, many EU countries have significantly improved their regulatory management practices over the last decade. For instance, substantive investments have been made by EU Member States to seek input on draft laws from affected parties, especially via electronic communication. Furthermore, nearly all EU Member States have embedded RIA as a core part of their regulatory management toolkit. Although the European Union as an institution scores favourably compared to most of the Member States, the implementation of regulatory management tools can still be improved by all. EU countries do not usually facilitate the early engagement of their citizens in the European Commission’s regulatory proposals. The Commission uses a range of different tools to engage with stakeholders at various points during policy development. EU countries and their citizens thus have opportunities to participate, provide evidence, and improve EU laws, including at early stages of their development. Many member countries, however, do not sufficiently inform their stakeholders of these opportunities to provide input. Instead, most stakeholder engagement with EU laws occurs after the Commission has made a regulatory decision via individual transposition procedures. At this stage, the focus of consultation is generally on the implementation of EU directives, rather than on their expected societal impacts. To ensure that EU laws benefit fully from stakeholder consultation, Member States should provide better evidence and information during regulatory design to complement the existing practices of the European Commission. Where Member States’ regulatory practices are poor, the potential benefits of EU laws will be reduced. For example, if EU laws are implemented in a piecemeal manner, the resulting regulatory burdens will be higher than they should be, hampering investment and reducing competition, as well as posing a risk to the single market. Where EU countries include additional regulatory measures in excess of those provided in EU laws, 16 │ EXECUTIVE SUMMARY BETTER REGULATION PRACTICES ACROSS THE EUROPEAN UNION © OECD 2019 it is important that these measure be subject to appropriate consultation and impact assessment as part of their design, to ensure that the anticipated gains from EU laws are realised. With respect to domestic law-making in Member States, stakeholder engagement often takes place too late in the policy development process to be of real value. Perhaps more striking is that, in some Member States, stakeholder engagement is still not sufficiently broad. The vast majority of EU countries have heavily invested in the establishment of online government portals to better communicate with affected parties when developing laws. While praiseworthy, these investments are not yielding their full potential benefits. For example, stakeholders are generally not informed by policy makers about how they have helped to shape and, ultimately, improve regulatory proposals. This may lead to disenchantment among stakeholders, and possibly to the rejection of laws, and to diminishing voluntary compliance and engagement in future stakeholder consultations. Greater accountability for the results of consultation is not only needed in EU countries but also in OECD countries more broadly, the 2018 Regulatory Policy Outlook found. Many EU countries are also not reaping the full benefits of using regulatory impact assessment to aid domestic law-making. They do not systematically assess alternatives to the proposed regulatory option, and where a triage procedure exists, it tends to focus on the cost to business only when determining a proposal’s potential impact and the corresponding level of assessment required. The RIA process still begins only after regulatory proposals are developed and decided upon by governments. Furthermore, there is no real incentive to change practices, as there are little or no consequences to producing poor quality RIAs. Despite its instrumental role, oversight is still one of the least developed features of regulatory policy in many EU countries. All EU countries and the European Union itself remain more adept at making laws than at ensuring they continue to deliver benefits to communities. Laws are not systematically subject to ex post evaluations in almost all EU countries, creating a risk that obsolete laws remain in force. This represents a substantive waste of resources to the economy: to governments, in terms of unnecessary inspections and enforcement; to businesses, in terms of excessive regulatory burdens; and to citizens, in terms of reduced choice, increased prices, and exposure to potential risks when regulations do not keep pace with societal changes. Where ex post evaluations are conducted, they tend to be unstructured, and do not systematically allow for public consultation or impact analysis. Worse still, ex post evaluations do not systematically assess whether regulatory goals have been achieved—something of vital importance for establishing whether laws remain appropriate. These findings are in line with the findings for OECD countries. The better regulation agendas of EU countries and of the European Union need constant attention – a ‘set and forget’ model does not work, just as it does not work for laws themselves. Countries need to strengthen their regulatory processes and the institutions involved. At a time of fiscal stringency and heightened global uncertainty, regulatory policy remains a key government tool for ensuring the safety and well-being of citizens while stimulating innovation and economic growth and prosperity. Despite some improvements, much work remains to be done to reap the rewards of better regulation.

1. The stock of laws and regulations has grown rapidly in most countries. However not all regulations will have been rigorously assessed, and even where they have, not all effects can be known with certainty in advance. Moreover, many of the features of an economy or society of relevance to particular regulations will change over time. The OECD Recommendation on Regulatory Policy and Governance (2012) therefore calls on governments to “[c]onduct systematic programme reviews of the stock of significant regulation against clearly defined policy goals, including consideration of costs and benefits, to ensure that regulations remain up to date, cost justified, cost effective and consistent, and deliver the intended policy objectives.” 2. The OECD Regulatory Policy Outlook 2015 found that the use of evidence and analysis in the regulatory process has to date mostly involved ex ante assessments. Given that the stock of regulation is much larger than the incremental flow, there is large potential for improving the existing regulatory framework through more systematic ex post evaluations of regulations. 3. The 9th OECD Conference on Measuring Regulatory Performance was concerned with the appropriate institutions and processes to effectively implement ex post evaluation. Discussions focussed on institutionalising ex post evaluation as an integral part of the regulatory cycle, the results of which feed back into the regulatory process itself. 4. The following considerations emerged from the discussions as central to the effective implementation of ex post regulatory reviews:  Ex post reviews need to go beyond a “costing exercise” to focus on whether the regulation’s underlying policy objectives have been achieved. In addition, evaluations should take into account any side-effects of regulations and include a consideration of possibly better alternatives.  A mix of different approaches to evaluation will generally be required, depending on the context, including reviews of regulations triggered by “sunsetting” clauses and statutory requirements, and ad hoc reviews. Comprehensive in-depth reviews or programme reviews that look at the mix of regulations and policy instruments in certain policy areas or sectors can identify options for more broad-ranging reforms. Evaluations triggered by “sunsetting” clauses or automatic review requirements might also be usefully packaged if they address similar or overlapping issues. Finally, ongoing ‘management’ of regulations, e.g. through stock-flow linkage rules or red tape reduction targets, can achieve significant reductions in administrative burdens  Evaluations that are built into the regulatory regime from the outset create a coherent link between ex ante and ex post evaluation to support evidence-based policy making throughout the regulatory cycle. This approach can ensure the setting of clear objectives and enables the early identification of an appropriate methodology and data needs.  While there is no “one-size-fits-all” institutional setting for ex post evaluation, independent bodies can play a key role in conducting reviews and providing 4 │ Closing the regulatory cycle: effective ex post evaluation for improved policy outcomes oversight of evaluations. The more ‘sensitive’ the regulatory area, and the more significant its impacts, the stronger the case for an ‘arm’s length’ review process. Less critical evaluations will normally be conducted by line ministries and agencies themselves. These can also benefit from some form of independent quality control. Regulatory reviews should not be carried out in isolation but pay attention to previous evaluations prepared by other institutions, including parliament and independent bodies.  Consultation with stakeholders is crucial to make sure evaluations are targeted appropriately and can be informed by the real-world impact of regulations. Consultation with stakeholders also helps ensure recommendations for improvement are practical and user-centred. At the same time, those responsible for evaluation need to account for the diversity of knowledge, resources and level of organisation of different stakeholder groups.  Getting the timing of evaluations right can greatly increase the impact of resulting recommendations within the policy-making process. Depending on the political system, an evaluation conducted at a time when parliament plans a new legislative initiative in a related policy area may have more impact than one conducted during an election campaign when results face a greater risk of becoming politicised. Evaluations may also help inform party programmes or coalition agreements when published at the right time.  The existence of stock-flow linkage rules such as ‘one-in x-out’ can provide an incentive and discipline for keeping regulatory costs in check. To be effective, such regimes should motivate proper evaluation of existing regulations proposed for removal including assessments against their objectives and broader public policy objectives.  In order to ensure the quality of ex post evaluations, governments need to invest in the required skills and capacities within the public sector. A number of academic disciplines are potentially needed, depending on the area of regulation being reviewed, but the key skills in common relate to the identification and measurement of impacts, whether social, environmental or economic

In recent years competent authorities in the EU have adopted various initiatives to facilitate financial innovation. These initiatives include the establishment of ‘innovation facilitators’. Innovation facilitators typically take the form of ‘innovation hubs’ and ‘regulatory sandboxes’. Innovation hubs provide a dedicated point of contact for firms to raise enquiries with competent authorities on FinTech-related issues and to seek non-binding guidance on regulatory and supervisory expectations, including licensing requirements. Regulatory sandboxes, on the other hand, are schemes to enable firms to test, pursuant to a specific testing plan agreed and monitored by a dedicated function of the competent authority, innovative financial products, financial services or business models. In this report the European Supervisory Authorities (the ESAs) set out a comparative analysis of the innovation facilitators established to date in the EU, further to the mandate specified in the European Commission’s March 2018 FinTech Action Plan.The ESAs also set out ‘best practices’ regarding the design and operation of innovation facilitators, informed by the results of the comparative analysis and the experiences of the national competent authorities in running the facilitators. The best practices are intended to provide indicative support for competent authorities when considering the establishment of, or reviewing the operation of innovation facilitators. Accordingly, the best practices are intended to promote convergence in the design and operation of innovation facilitators and thereby protect the level playing field. The ESAs also set out options, to be considered in the context of future EU-level work on innovation facilitators, including in conjunction with the European Commission’s future work, to promote coordination and cooperation between innovation facilitators and support the scaling-up of FinTech across the EU. These options comprise: • the development of Joint ESA own-initiative guidance on cooperation and coordination between innovation facilitators; • the creation of an EU network to bridge innovation facilitators established at the Member State level. The ESAs will continue to monitor national developments regarding innovation facilitators and take such steps as are appropriate to promote an accommodative and common approach towards FinTech in the EU.