Many argue that we have never had so much regulation imposed on every aspect of our lives. Increasing sensitivity to health and safety issues at work and elsewhere, a growing awareness of consumers’ rights as well as the need to ensure that the financial crisis of 2008 is avoided in future has given rise to onerous regulations imposed by governments to manage the risks that ‘light touch’ regulation failed to address.
Regulation is not something new. In the 19th century, when industry became the main economic activity in many European countries, business regulation flourished with a growth in insurance, company and patent law. In more recent times governments enacted laws to regulate utilities that were being privatised as it was felt that new private owners of essential public services should not be allowed to abuse their dominance in the market. Some private monopolies are notorious for their greed.
So how can we define regulation? A good definition of regulation is given by Baroness Deech, chair of the UK Standards Board and for a time the Gresham professor of law: “Regulation is the supervision of professional activity in the interest of the public as a whole, their welfare, their rights and their future, where those elements would be at risk were there no regulations.”
Deech goes further and defines what she understands by bad regulation: “It is regulation that does not achieve its ends, is overly expensive, intrusive, resented and rigid, and lacking in understanding of the objectives of the overseen.”
The big challenge facing every regulatory body is the striking of a balance between what is perceived to be good and bad regulation
The big challenge facing every regulatory body is the striking of a balance between what is perceived to be good and bad regulation. So it stands to reason that even regulators need to be regulated lest they lose touch with their mission to protect the public from certain risks or abuse of power by certain unscrupulous operators.
Those who study the dynamics of regulation are familiar with the notion of ‘light touch’ as opposed to ‘intrusive’ regulation. Some professionals like lawyers and doctors are vociferous supporters of self-regulation because of the pride they have in their perceived ability to adhere to strict standards of conduct. But public loss of confidence following blatant failures to uphold good conduct at all times has led to stricter regulation of the medical and some other professions.
The prevalent legal theories of regulation are ‘really responsive regulation’ and ‘right touch regulation’. Deech has a good interpretation of what these theories mean. Regulators should spend more time assessing their own performance and failures and the imperatives of the people and institutions that they oversee. ‘Right touch’ regulation means always asking what risk the regulator is trying to regulate, being proportionate and targeted in regulating that risk or finding ways other than regulation to promote good practice, using regulation only when necessary and checking for unintended consequences.
Following the financial crisis of 2008, the British parliament took a good look at the way the financial services industry was regulated. Many rightly believed that the Financial Services Authority (FSA), the then UK super regulatory body, contributed to the financial crisis and economic recession that followed. The FSA itself admitted that “Northern Rock was inadequately regulated and that it had failed to focus on the large systemic risks in the banking sector”.
The two bodies that replaced this super regulator are the Prudential Regulatory Authority and the Financial Conduct Authority with this latter entity being made responsible to ensure that financial firms treat their customers in an acceptable way. Other regulators also need to engage in some soul-searching assessment of the effectiveness of their functions.
Many argue that the strict EU regulations on food safety have gone too far. Millions of tons of perfectly safe food are thrown away each year by supermarkets because some products’ appearance may have deteriorated following their ‘best by’ date. This is being done at a time when millions of people in the EU are struggling to survive because of the difficult economic conditions in most countries or for other social reasons.
The people who run regulatory bodies must have considerable first-hand experience of working in the industry they are trying to regulate. The ‘box ticking’ approach will never ensure that regulators are being effective in protecting the public. Deech is right when she says that the legalistic approach to regulation has only given rise to the ‘compensation culture’ where lawyers tout their services on a ‘no win no fee’ basis fuelling a litigation torrent.
johncassarwhite@yahoo.com