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The Regulatory Process: Enabling Smart Regulation
A Dialogue with Stakeholders

External Advisory Committee on Smart Regulation
September 2003

Introduction

A. The External Advisory Committee on Smart Regulation

The 2003 Speech from the Throne identified Smart Regulation as a Federal Government priority. The world is changing and in this evolving environment, Canada needs a regulatory system that responds quickly and effectively to the challenges of rapid scientific and technological change, as well as emerging opportunities and risks in global markets. There is a need for integrated and transparent government institutions and public policy.

The External Advisory Committee on Smart Regulation was established to provide the Government with an independent, external perspective and expert advice on regulatory issues spanning economic and social policy objectives. Its members have been drawn from the business, non-governmental and academic communities. Over the course of the next twelve months, the Committee will consult with politicians, government officials, business, non-governmental organizations, our international partners and other stakeholders to develop a regulatory system that will promote health and sustainability, contribute to economic growth and reduce the regulatory burden on business and other stakeholders.

B. The Committee's Vision

The vision of the External Advisory Committee on Smart Regulation is for governments, citizens and businesses to work together to build a national regulatory system that enables Canadians to take advantage of new knowledge and supports Canada's participation in an international economy. This vision has three components:

  • Trust: the regulatory system must instill trust, confidence, and credibility at home and abroad in Canadian products and services, markets and government institutions.

  • Innovation: the regulatory system must enhance market performance and enable innovation, competitiveness, entrepreneurship and investment in the Canadian economy.

  • Protection: the regulatory system must demonstrate to citizens that the public interest, such as human health and safety and the protection of the environment, will be safeguarded within dynamic global markets.

The Committee believes that this vision can be achieved by having Canadian regulatory systems, at every point, adhere to the following principles:

  • Effectiveness: regulation must achieve its intended objectives and complement the efficiency of market forces.

  • Flexibility: regulation must be developed from the citizen's perspective and must be reviewed regularly and systematically to ensure that it takes into account changing business environments and scientific and technological advances.

  • Transparency: the regulatory system must be accessible and transparent to promote learning and information sharing and build public trust at home and abroad in the quality of Canadian regulation and the integrity of the process. The regulatory system should be open, reduce uncertainty and enable participation from citizens and business.

  • Accountability: regulators must explain their decisions and be subject to public scrutiny. They must account for their results, with performance being monitored and measured and reported to the public on a systematic basis.

  • Collaboration: regulation must be developed with the participation of citizens and business and in coordination with other foreign and domestic jurisdictions to ensure that it reflects the interests of Canadians and takes into account Canada's major trading relationships.

To move from the vision to reality, an adaptable, learning and leading edge regulatory community is needed to meet the challenges of a knowledge-based society and economy. Government must ensure that it attracts, retains, and continuously develops highly skilled members of this community.

C. Purpose of Paper

This paper is intended to raise issues, questions and even a few options for the next wave of regulatory reform. There are no definitive answers given here, but there are questions and ideas to stimulate discussion and advance the debate about regulatory reform and, in particular, reform of the regulatory management process.

The paper begins with a short discussion of the current regulatory system and the logic behind its design. It will then discuss concerns about evaluating this system. How do we know when we've got it right? The Committee believes that performance indicators must be established for the regulatory management system and they must be used so that citizens and government officials alike will know whether the system leads to better regulation. The paper will then review some of the problems with the regulatory management process that have been identified and that point the way for changes and improvements. The system itself will then be examined, including the Government of Canada Regulatory Policy. All through the paper, questions are raised to stimulate discussion and consultation.

The Committee would like to hear the views of stakeholders-businesses, other governments, non-governmental groups, not-for-profit organizations, consumers, government officials and citizens in general-about problems and solutions. The Committee would like to know more about how well the process has been working and where it has been weak. New ideas are welcome, as are thoughts that will give the Committee a better understanding of where it must go from here.

2. Where We Are Now

A. Current Regulatory System

The federal regulatory process is governed by a number of government policies, cabinet directives and laws. These establish requirements for regulators and regulatory decision-makers, primarily in the area of the development and approval of new subordinate legislation ("regulations"). Statutes and rules other than regulations do not receive as much attention under the current regulatory system. The Committee's concerns, however, are broader than regulations made under the authority of statutes and include regulatory action by government through both primary and secondary legislation instruments. The forerunner of the current regulatory process was established in 1986 to achieve:

  • better management of federal regulation;
  • more effective ministerial control of the regulatory process; and
  • greater public access to and involvement in federal regulatory activities.

Consistent with the developing emphasis on subordinate regulations as the focus of the regulatory management system, the Regulatory Process Management Standards provided a framework for the development and approval of regulations. The key elements are:

  • Problem or issue identification: is there a problem requiring regulatory intervention?

  • Analysis of alternative solutions: are there ways other than regulation to solve the problem?

  • Impact assessment: what will be the impact of the proposed regulation on business, labour, government, consumers, the environment and the general public? Are the benefits of regulatory requirements greater than their costs?

  • Regulatory burden: are the adverse impacts on Canada's sustainable development minimized? Is there any unnecessary regulatory burden, especially on small business?

  • Flexibility: have equivalent means to conform to regulatory requirements been considered?

  • Intergovernmental coordination: have new regulatory requirements been coordinated with existing ones to avoid duplication and overlap? Have existing national and international standards been considered? Are inter-provincial and international agreements respected?

  • Implementation: has the design of the regulatory program identified objectives and specifications for program delivery? Is there a simple and effective complaint resolution system?

  • Consultation: has there been timely and thorough consultation with interested parties?

  • Training: are regulatory personnel competent to carry out these requirements?

  • Documentation: have regulatory policies and processes, including responsibilities, authorities and inter-relations of personnel who manage, carry out and review regulatory programs been documented?

Departments also provide advance notice of proposed new laws through the Reports on Planning and Priorities that are published each spring. In addition, Departmental Performance Reports published each fall identify program performance indicators and report on measured performance.

B. The Logic of the System

The ideas behind the federal Regulatory Policy and the regulatory management process requirements were conceived and implemented at a time (early and mid-1980s) when regulation was growing at all levels. Federal and provincial cooperation on shared regulatory jurisdiction was not well developed. In various economic sectors (e.g., transport, telecommunications, financial services), significant economic regulation protected firms from competition, to the disadvantage of consumers. The "new regulation" in the social areas of consumer protection, health and safety, labour standards, and the environment was growing at a significant rate.

There was no broad government policy concerning the use of regulatory intervention. Each regulatory decision was assessed solely within its own policy framework (e.g., control of drug prices, environmental protection, worker safety). The full impacts of proposed regulation were rarely examined. Regulation was an almost automatic response to problems ("there oughta be a law!"). By today's standards, consultation was limited and narrowly focused. There was no mechanism to ensure that the public saw draft regulations before they were promulgated.

The logic behind the new regulatory management system was to correct these deficiencies by improving the thinking about regulation and ensuring that decision-makers understand the consequences and implications of their decisions. Generally, the idea was that better analysis and better information would improve the end result: regulatory burdens would be diminished, objectives would be achieved more effectively and efficiently, and the credibility of government regulatory action would be enhanced. Interaction with stakeholders through consultation and information exchange would improve the quality of decisions and foster compliance. In addition, regulation would not necessarily be the first response to a problem, but chosen only where it could be demonstrated that it was the best response.

It was also thought that information, analysis, and analytical methodologies about impacts of regulation would be subject to public oversight and challenge. Expertise would grow and the new system would become part of the government decision-making culture. The elements, particularly the greater transparency and improved accountability for regulatory decision-making, would act as incentives for continuous improvement of the system.

The regulatory management system has succeeded in a number of ways, but it has not completely lived up to expectations. It has become narrowed, with increasing focus on subordinate legislation ("regulations"), to the exclusion of other government instruments. The current regime was also designed to operate as a system. To be fully effective, the various players should be able to understand why each part of the system was there, what it was supposed to do and how it related to other parts. This understanding of how and why the machinery was designed appears to have been lost, or perhaps it was never communicated. Some of the problems with the system will be identified below. The next section, however, will examine how we can know whether the system has achieved its objectives. This will be key to ensuring that continuous improvement is realized.

C. How Do We Know We're Doing It Right?

The regulatory management system is, in effect, a regulatory system. It sets standards and requirements for regulators and policy developers to follow in developing, assessing and recommending regulatory actions. It identifies the type of information that decision-makers should consider and it sets out a framework for government interaction with stakeholders (e.g., advance notice, publication of proposed regulations, and consultation).

Government officials, like their counterparts in industry, must develop and apply performance criteria and indicators to measure the success of their programs. Similarly, officials (and their overseers in Parliament and the public) should be able to measure the success of the regulatory management system. What is needed is an effective way to discover whether the regulatory process is achieving its own objectives (e.g., informed decision makers making timely decisions) and meeting its ultimate objective, producing better quality regulation. This ultimate objective could be viewed as regulation that is effective at meeting its own objectives with minimal regulatory burden. Ideally, the regulatory management system should produce regulation that is more efficient, better targeted, more flexible, more credible, and have better compliance and "buy in" from the public. Ultimately, assessment of the performance of regulation will provide information to judge the success of the regulatory management system itself.

There are a number of possible criteria against which to judge the success of the regulatory management system. The Committee believes these are particularly important.

  • Timeliness: This has a number of dimensions, including the timeliness of the process itself and the timeliness and responsiveness of the system's components. Are regulatory decisions and legislation produced as quickly as possible consistent with demands for consultation and analysis? Does consultation occur at a point when stakeholder input will have a genuine effect on analysis and decision-making? Does government respond to stakeholders to maintain a dialogue throughout the process?

  • Quality of the analysis: Impact analysis is a science that has elements of being an art-Continual judgments are required. Although, reasonable arguments exist about methodologies and approaches. There are preferred approaches and matters to be considered and analysts should be able to explain and justify their methodologies.

  • Proportionality of analysis to impact: Regulatory actions that have major impacts on the economy, or a sector of the economy, or are highly controversial may require extensive analysis. This can be costly and time-consuming to government and stakeholders who participate. For high impact matters, it is important that this be done. At the same time, for matters with lower impacts, the nature and depth of the analysis should be proportional to the effects.

  • Quality of consultation and communication: Consultation should be an interactive dialogue; government and stakeholders should be exchanging information and learning of each other's concerns. Stakeholders should be given information on the government's analysis and proposals so that they can react. Consultation should produce information that improves government decision-making and it should improve stakeholder understanding of proposed government action. It should take place at points where it is useful to both government and stakeholders; indeed, it should be an on-going process that fosters confidence and credibility for all the players.

  • Consistency and predictability: This may be an important signal of quality at various points in the system. For example, consistency in the use of assumptions and methodologies for similar types of analysis strengthens credibility and allows for comparisons among and within sectors. Consistent approaches for similar issues also enhance transparency and predictability for regulatees. Flexibility: This also has several dimensions. It can be the other side of consistency and a balancing of the two qualities may be required. It refers to whether the system itself has the flexibility to adapt to changing needs and the degree to which the system adapts to the needs of stakeholders and decision-makers.

  • Coverage of the system: This relates to whether the regulatory management system covers all forms of regulatory intervention, regardless of the legal instrument. One important aspect of this issue where it relates to regulations is the coverage of the Statutory Instruments Act, which frames the current regulatory process. Furthermore, it can relate to the content of the requirements relative to the form of intervention and its potential impact (see also, proportionality, above).

  • Accountability: Officials and decision-makers should be held accountable for their actions. Indicators might look at whether clear responsibilities for the various stages of the system have been assigned and whether actions have been documented.

How Do We Know We're Doing It Right?

  1. Are these the appropriate criteria against which to measure the performance of the regulatory management system? What other criteria might be appropriate?
  2. What role, if any, should independent bodies or the public play in assessing the effectiveness of the system?
  3. Should there be a public report on performance of the regulatory management system, using these and other criteria?

3. Thinking Differently About How We Regulate

Why We Need to Improve the Regulatory Process

A number of parts of the regulatory system are working "pretty well." There has been a real change in the culture of regulation over the past twenty years and important advances have been made. Consultation is now ingrained into the process. More care is given to examining the impacts of regulation. Compliance and enforcement issues are considered more often in designing regulatory legislation and programs. There are, however, weaknesses and areas where improvement is desirable:

  • Delays and failure to ensure the timeliness of regulation: A number of stakeholders are dissatisfied with the timeliness of the system. While it is true that regulatory legislation, particularly in the health, safety and environment areas, is becoming more complex, there is still concern that it takes too long to create or adjust new regulation. Timeliness, of course, must be balanced with the desire for better information, extended consultation, and careful analysis.

  • Transparency and accountability: In spite of improved communication and public documents describing the process, it is poorly understood by the public and sometimes even by government officials. The process, the decisions and the rationale for decisions are not always clear or clearly communicated. Nor is it always clear who is responsible for regulatory actions, including development and implementation of policy and legislation.

  • Scope of the regulatory management system: The current regulatory management system focuses on regulations and its scope is determined by the definitions of "statutory instrument" and "regulation" in the Statutory Instruments Act. These definitions are complex and difficult to understand (thereby decreasing transparency) and they sometimes lead to inappropriate results, either by excluding some generally applicable legal instruments from the process or by including others that apply only to particular individuals. This can also introduce uncertainty into the choice of alternative instruments. Furthermore, the system does not apply to primary legislation, statutes, or to other forms of rules.

  • Problem identification: The very beginning on which all the other steps ultimately depend is the identification and assessment of the problem. More work on problem identification can nourish the policy requirements that alternatives be assessed and regulatory action justified, as well as contributing to the design of minimally intrusive and burdensome regulation.

  • Quality of the analysis: A full-blown impact analysis is costly and time-consuming and suited to only the most significant regulations. Regulatory actions with lesser impact should receive commensurately less analysis in terms of depth and sophistication. Irrespective of this, the quality of analysis is uneven. There are no standardized methodologies and assumptions and consistency in approach is often lacking. Analyses are seldom, if ever, subjected to after-the-fact review to determine whether experience has borne out the assumptions and results of the analysis. Many officials do not have experience in regulatory impact analysis and have difficulty in recognizing analytic issues and problems.

  • Capacity: As the regulatory system has matured and as more demands are being placed on government officials to improve the regulatory process, the capacity to fulfill these responsibilities has been put under stress.

The Smart Regulation initiative is an opportunity to step back and think again about what Canadians want from the regulatory system. What kind of regulations do we want? What values do we want to foster? How can we ensure that regulation contributes to, and not inhibits, Canada's performance in the globalized economy? The existing system needs improvement and refinement. The Committee believes, however, that Smart Regulation means more than that and the Committee wants to see a system that is capable of continuous improvement, with the bar for what constitutes Smart Regulation rising over time as policies become better integrated into the system and experience and expertise are gained.

B. Getting the Regulatory Policy Right

Over the last twenty years, the Government has made several public statements about the policies and values that it expects to be respected in new regulatory legislation. Foremost among these is the Regulatory Policy, which was first issued in 1986, along with the Citizen's Code of Regulatory Fairness. The underlying theme of the Policy was "regulating smarter." The most recent version (1999) of the Government of Canada Regulatory Policy states:

When regulating, regulatory authorities must ensure that:

  1. Canadians are consulted, and that they have an opportunity to participate in developing or modifying regulations and regulatory programs;

  2. they can demonstrate that a problem or risk exists, federal government intervention is justified and regulation is the best alternative;

  3. the benefits outweigh the costs to Canadians, their governments and businesses. In particular, when managing risks on behalf of Canadians, regulatory authorities must ensure that the limited resources available to government are used where they do the most good;

  4. adverse impacts on the capacity of the economy to generate wealth and employment are minimized and no unnecessary regulatory burden is imposed. In particular, regulatory authorities must ensure that:

    • information and administrative requirements are limited to what is absolutely necessary and that they impose the least possible cost;

    • the special circumstances of small businesses are addressed; and

    • parties proposing equivalent means to conform with regulatory requirements are given positive consideration.

  5. international and intergovernmental agreements are respected and full advantage is taken of opportunities for coordination with other governments and agencies;

  6. systems are in place to manage regulatory resources effectively. In particular, regulatory authorities must ensure that:

    • the Regulatory Process Management Standards are followed;

    • compliance and enforcement policies are articulated, as appropriate; and

    • resources have been approved and are adequate to discharge enforcement responsibilities effectively and to ensure compliance where the regulation binds the government.

  7. Other directives from Cabinet concerning policy and law making are followed, such as the Cabinet Directive on Law-making and the Cabinet Directive on the Environmental Assessment of Policy, Plan and Program Proposals and the Cost Recovery and Charging Policy.

The 1986 Citizen's Code of Regulatory Fairness sets out some government commitments to citizens. For example, Canadians are entitled to expect that federal regulation will be characterized by minimal interference with individual freedom to the degree consistent with the protection of community interests. Officials will be held accountable for their advice and actions in developing, implementing or enforcing regulation. All rules, sanctions, processes and actions of regulatory authorities will be securely founded in law. In addition, the government will encourage the public to exercise its duty to criticize ineffective or inefficient regulatory initiatives and to offer suggestions for better or "smarter" ways of solving problems and achieving the government's social and economic objectives.

It takes months or even years to shape regulatory legislation and a major overall objective of the regulatory management system is to ensure that new regulation is compatible with the Regulatory Policy. The system should provide incentives for early and continuous alignment with the Policy. The essential objective is to ensure that this happens and that policy makers and decision makers "get it right."

Getting the Regulatory Policy Right

  1. How can the Policy be improved to fit our current needs and values?

  2. How can we ensure that the Policy adequately reflects principles of risk management?

  3. Should the Policy explicitly recognize certain values; for example, the value of sound regulation to Canadians and the Canadian economy? Which values?

  4. Should the Policy clearly apply to all forms of regulation, regardless of its legal source (e.g., statute, regulation, "grey" regulation) and whether or not legislative change is required?

  5. Should the application of the Policy through the Statutory Instruments Act be clarified?

  6. Should the Policy contain more discussion of process, such as methodologies for analysis? What areas should be covered?

  7. Should the Policy say more about how we administer and enforce laws? If so, what should be included?

C. Understanding the Problem and the Need for Government Action

Government regulation is intended to solve problems. For example, it is intended to ensure the safety and health of Canadians through food and drug standards and standards for automobile and airplane safety. It protects Canadian consumers through regulation of banking institutions. It protects the environment and health of Canadians through control of toxic substances in the environment. How problems are defined, however, has a great deal to do with how solutions are defined. Too often problems are defined in such a way that regulation is seen as the only or the primary solution. The relationship between problem identification or definition and choice of the means to deal with the problem is often strong. (see discussion below)

In addition to trying to understand the problem, policy makers (and stakeholders) should be asking, "Is this a problem that government can solve effectively? Does it justify some form of government intervention?" Involvement by stakeholders at this early stage can be invaluable in assessing the nature and scope of problems. Stakeholders also have an important role to play in bringing existing or potential problems to the attention of officials. Early cooperation and intervention can prevent more burdensome intervention at a later date.

Defining the Problem

  1. How can government involve stakeholders at early stages to work together to identify and define problems?

  2. How can stakeholders contest government's views on problems and the need for action?

In making these choices, governments must assess risks. Risk management is a major business of modern government. Government is concerned about a range of risks, including those arising from its own activity (see, for example, the Risk Management Policy set out by Treasury Board Canada), and risks that can be reduced by government intervention. When the government deals with such diverse matters as health and safety, the environment, and corporate governance, it faces the challenge of how to identify and assess risk. In addition, it wants to know how it can improve communication of risk to stakeholders and citizens. People are often poor natural risk assessors and information can reduce demands for unnecessary regulation or move the emphasis to regulation where the greatest potential benefits in terms of risk reduction may be found.

Related to risk reduction, the government must also be able to identify priorities among the possible problems and issues that it may be asked to deal with. In an environment where resources are limited and where an important objective is to reduce regulatory burden on the private sector and governments alike, the government must be able to determine where action is required and justified while protecting the health and safety of Canadians and the Canadian environment.

How Should We Assess and
Communicate Risk?

  1. How can government improve the communication of risk issues to the public and involve stakeholders in the identification and assessment of risk?

  2. How can the public be involved in identifying and setting priorities for regulatory and other action?

D. Choosing the Most Effective Way to Deal with the Problem

When the government concludes, with the help and advice of stakeholders, that a problem requires intervention, it has several ways to deal with it. Governments have always used a variety of policy instruments to achieve their goals. Regulation or the setting of rules backed by sanctions is common and much of the regulatory reform debate over the past twenty-five or more years has focussed on the tendency of modern states to use regulation as their main policy tool. Other tools are expenditures (subsidies, grants), taxes, information, moral suasion and public ownership. The ability of expenditures or taxes to change behaviour by changing the cost of the behaviour has long been recognized. Depending on other factors, people will tend to choose behaviour that is less costly or more rewarding. Informed people can also be persuaded to change their behaviour.

In many cases, governments use all or a mix of these instruments to achieve the desired objective. Turning Canada into a largely non-smoking society, for example, has been accomplished by a combination of taxes to increase the cost of cigarettes, active anti-smoking campaigns, and regulation of tobacco products and advertising. Municipal regulation has complemented federal regulation. Similarly, people are much more likely to refuse to drink and drive due to a combination of policies: increases in sanctions under the criminal law, advertising and promotion (including advocacy by private organizations), and improved enforcement. Drinking and smoking habits have changed and society's views of appropriate smoking or drinking behaviour have changed.

Not all instruments are available for all problems and a number of factors can affect the choice of policy instrument: jurisdictional power, cost, relative likelihood of compliance, need to publicly take action, complexity of system (e.g., taxes may be attractive in an efficiency sense, but can be complex to design) and the general policy climate (e.g., public ownership is now politically less desirable). Regulators must be encouraged to examine a variety of instruments and, where regulation is appropriate, design rules that are flexible and encourage innovation.

Regulation continues to be attractive to government for a variety of reasons, including expectations of stakeholders (particularly in the health and safety area). Managing expectations is an important issue in encouraging instrument choice. In addition, regulation is a familiar tool to policy makers and experience with the design of more complicated instruments, such as economic instruments to protect the environment, is still limited. Regulators must be encouraged and trained to use different instruments. In practice, however, most regulatory schemes will continue to employ a range of instruments. The objective is to enrich the use of the instrument mix and, where possible, to use regulation more sparingly. There are also alternative approaches to regulation that should be considered to introduce appropriate flexibility and reduce regulatory burden. These include: different compliance dates; different enforcement approaches; different degrees of stringency based, for example, on size or location of firm; different substantive requirements for different-sized firms; performance or outcome standards; and market oriented approaches, such as trading systems for pollution permits. Firms should be encouraged to develop alternative approaches to compliance. In some cases, government can explore the self-regulatory capacities of an industry to complement or substitute for government regulation or reduce the intrusiveness of a regulatory scheme.

Is Regulation the Best Solution?

  1. How can policy makers be encouraged to consider different solutions to problems?

  2. How can stakeholders be encouraged to provide government officials with options regarding alternatives, including self-regulation, and compliance alternatives or other flexible approaches to reaching regulatory objectives?

  3. Should greater emphasis be given to requiring justification for choosing regulation as the policy instrument? To whom should policy makers be required to justify regulation?

  4. Should the decision to regulate be contestable? How should this be done? Who should decide?

E. Maximizing the Benefit for Society

The existing regulatory management system subjects nearly all regulations (secondary legislation) to some form of impact analysis. The Regulatory Policy refers to benefits outweighing the costs to Canadians, which implies that some form of cost-benefit analysis will be done for regulatory proposals. In practice, cost-effectiveness analysis is more often used. In a cost-benefit analysis, both the costs and the benefits are expressed in monetary terms, allowing policy-makers to evaluate different regulatory options with differing attributes using a common measure. It is also helpful to measure different levels of stringency or other variables in a specific regulation (see discussion above) by measuring incremental costs and benefits. This may be particularly important since for some regulations, a small rise in stringency may produce little benefit but, at the extremes, can add significantly to costs.

In the case of most impact analyses in Canada, qualitative measures may be used, particularly for benefits. In some cases this is due to a true difficulty in assigning a dollar measure or it may be due to methodological uncertainties, although methodologies are improving. It may also be due to a bias against assigning even a statistical dollar value to certain costs, such as the cost of a premature statistical death averted.

Cost-effectiveness analysis provides a rigorous way to identify options that achieve the most effective use of the resources available without putting a dollar value on all the relevant costs or benefits. Both cost-benefit analysis and cost-effectiveness analysis tend to focus on economic efficiency. Decision-makers may want (or be required) to consider other issues, such as fairness and impacts on regions or particular segments of the population (e.g., the elderly, women, consumers, children). A regulatory analysis should also describe the distributional effects (which should not be confused with costs and benefits) such as how the costs and benefits are distributed among the different populations or regions.

Thorough and complete impact analyses can be expensive and time-consuming. Expertise is required, as well as reliable data. The system needs to better identify those matters requiring extensive analysis and match analytical effort to the importance of regulation. In addition, it may be desirable to put in place minimal analytical requirements for certain types of non-regulatory government action; e.g., taxation measures should clearly examine effects on productivity and competitiveness, as well as compliance costs and net revenue generation.

Is Cost-Benefit Analysis the Best Way?

  1. If the current emphasis on cost-benefit analysis does not adequately reflect the multi-dimensional aspects of the public interest, what other matters should be considered?

  2. Should analysis of impacts on environmental sustainability, small business, trade, and competition be explicitly required?

  3. How can we ensure consistent analysis? Should common assumptions and methodologies be set out for common issues?

  4. Should different types of analysis be done for different types of government actions, e.g., tax measures, or different types of regulatory actions?

The current requirement for impact analysis is interpreted to apply primarily to regulations and not to other legal instruments, including statutes. In practice, other instruments can have important impacts on both the public and private sector. "Grey" legislation or quasi-regulation are not regulations or statutes, but rather are policies, interpretation bulletins and directives that have the effect of imposing requirements on regulatees, although they are not in the strict sense laws. These are also not covered by the requirements for analysis. In addition, government action is being directed more and more often by international treaties that impose obligations to regulate. There is no current requirement that the potential impacts of negotiating positions be analyzed to ensure benefits to society are maximized.

One serious widespread problem is that impact analysis is often not integrated into the policy-development process, but rather takes the form of an after-the-fact preparation of the Regulatory Impact Analysis Statement (RIAS), an information document discussed in the next section. In these situations, consideration of alternatives and impacts is done after the regulatory approach is decided upon and possibly even after the regulation itself has been drafted.

How Can We Improve the Analysis?

  1. How should the analysis fit in with consultation? For example, should impact analysis be handled in two stages, that is, a preliminary analysis forming the basis for early communications with stakeholders and a more formal and complete analysis based on, among other matters, information obtained through consultation?

  2. How can impact analysis be better integrated into the policy-making process at earlier stages so that it is part of the policy considerations throughout the process?

  3. How can the quality of analysis be improved? Should selected analyses be reviewed after the regulatory program has been in operation to assess the quality and accuracy of the assessment?

  4. Should the requirement for impact analysis be extended to cover proposed negotiating positions in international fora?

F. Ensuring Good Information for Decision-Makers and Stakeholders

The Regulatory Impact Analysis Statement (RIAS) is a primary means of communicating to decision-makers and stakeholders about the objectives, legal basis, and impact of regulations. The quality of RIASs, like the quality of the underlying impact analysis, is variable both within and among regulatory departments.

Currently, the requirement to produce a RIAS, with the underlying analytical requirements discussed above, applies only to secondary legislation. It does not apply to proposals for new statutory legislation. However, many of the issues found in RIAS are addressed in Memoranda to Cabinet on policy and litigation initiatives. There is, as well, no requirement to prepare a RIAS for "grey or quasi" regulations ie., documents that may not have the full force of law behind them but that will influence government's expectations of citizen behavior. This latter point is becoming more and more important as the use of international standards is encouraged in order to reduce barriers to trade and enhance open markets.

The RIAS may be made available to stakeholders through a departmental website, for example, and is published in the Canada Gazette prior to the enactment of regulations, as well as in the notice of their adoption. Stakeholders and others wishing to review the analysis documented in the RIAS may want more information about the underlying analysis, including documents and studies. Some of these documents can be found on the internet, but it is not yet common practice to make them available on departmental websites.

The RIAS has become the focus for much of the attention regarding regulatory impact analysis. This is symptomatic of the failure to integrate analysis into policy development. In far too many cases, the concern is on how to develop information to fill in a form, the RIAS, and not on how to develop information to feed into the policy development and decision process. The challenges then are two-fold: improving and using the analysis as discussed above; and ensuring that the results of the analysis are clearly and consistently communicated to decision-makers and stakeholders.

How Can We Improve the Information for Stakeholders and Decision-Makers?

  1. What information should be provided in a Regulatory Analysis Impact Statement (RIAS)?

  2. How can the quality of RIASs be improved? Should there be quality standards in the Regulatory Policy? How should these standards be expressed?

  3. What techniques could be used to improve the clarity of the RIAS? Would improved non-technical summaries be helpful?

  4. What means (other than the Canada Gazette) could be used to provide stakeholders with the RIAS or the information in a RIAS?

  5. Should a RIAS provide more information about background documents and studies? Should these studies and documents be routinely available on the website of the regulating department?

  6. Should the publication of the RIAS provide an opportunity to contest assumptions, scientific studies and conclusions?

G. Ensuring the Transparency of Rules and Decision-Making: Communication and Openness

Transparent regulation and good communication goes a long way to maintaining a legitimate and accountable system of rules. Transparency is key for accountability, credibility, openness of the market to foreign investment, effective compliance, and enhancing a civil society. It means that rules are clearly written and understandable and easily accessible. It means that persons subject to regulation understand their obligations and how the rules will be enforced. Transparency in decision-making and regulation means that stakeholders know how decisions are made, who makes them and what information they use.

How Can Transparency and
Openness be Improved?

  1. What can be done to make rules, especially regulations, more understandable?

  2. How can the rules, especially regulations, be more easily accessible to stakeholders?

  3. What help can government provide so regulatees understand their obligations under the law?

Communication and consultation with stakeholders (including other governments) are iterative matters that should run through from early identification of problems to the evaluation and adjustment of regulatory programs. Its effectiveness and credibility will have profound and long-lasting effects on choices of instruments; legislative, institutional and program design; compliance and effectiveness of enforcement programs; and, ultimately, on the credibility of the regulatory program itself (as well as government as a whole). While consultation has improved considerably over the last twenty years, it is an area where stakeholders express concerns and reservations. Communication is valuable, but it also has a cost; the result for stakeholders may be "consultation fatigue", particularly for small businesses, consumer groups and other stakeholders without extensive resources.

Others are concerned that consultation occurs too late in the process after decisions have been made. This is not genuine consultation or an exchange of views but rather an information session with officials telling stakeholders what is going to happen. Even where consultation occurs at a point where policy may be influenced, stakeholders may not know what happened when their views are not reflected in final policy. Were they ignored or was there a reasonable basis for government choices? Explanations and requirements to clearly articulate and communicate the reasons for decisions improve transparency and credibility.

How Can Communication be Improved?

  1. How can we improve consultation documents so that stakeholders respond to government's need for information and feedback while at the same time being able to frame their concerns in a way that communicates to government?

  2. Can government foster the capacity of stakeholders to respond to minimize the risk of "consultation fatigue"?

  3. Should consultation schedules be established and published early in the process to govern expectations? Should regulators be required to justify failures in early consultation or compliance with a consultation schedule?

  4. Would greater use of on-going advisory bodies improve communication, even for more routine matters (they often exist for more major policy areas)? In what areas would they be most helpful?

  5. Should the Regulatory Policy require improved explanations from officials where proposed regulation does not reflect concerns expressed in consultation?

H. How Can We Ensure Fair and Effective Administration of Regulation?

When the government approves a regulation it is making a law. Compliance with a law is not discretionary, it is mandatory. We believe that the threat and reality of sanctions is essential element in securing compliance. On the other hand, enforcement actions are not the only, or even the most important, factor that determines the overall level of compliance. It is always a question of balance.

The lack of resources and the search for effectiveness have driven the government to become more sophisticated about regulatory compliance. Federal regulatory programs increasingly employ a variety of techniques to promote compliance with legal requirements and departments are really trying to focus on the effectiveness of their enforcement methods to get maximum compliance.

We also believe that people should be treated fairly under the law and that regulations should be enforced in an even-handed manner. We also make important distinctions between regulatory law and other forms of law, particularly criminal law. Adjudicative procedures, standards of proof, defenses, and forms of sanctions are often quite different in the realm of regulatory law.

For many businesses and citizens, direct experience with government regulation is more likely to arise from administration or enforcement activities. We think the government's approach in this area could be improved. Maybe, if regulators thought more in terms of private sector concepts such as "client service", performance standards, dispute resolution, negotiated settlements, they'd have better results. Or, maybe not. After we make regulation, how do we make it work?

How Can We Ensure Fair and Effective Administration of Regulation?

  1. How should regulatory officials decide what strategies to adopt and what measures to employ to secure compliance with the law?

  2. How should people be treated if they become involved in regulatory enforcement activities?

  3. Can the government's approach to what constitutes satisfactory compliance be improved? Is it possible to fashion laws that contemplate different and evolving methods of compliance and that allow different ways of determining whether compliance exists?

  4. Are we being "smart" about regulatory sanctions? What are the strengths and weaknesses of government's toolkit in the area of enforcement and compliance? How can the government improve in this area? What's missing?

  5. If the government continues to be more creative with regulatory administration and enforcement, how can we ensure that the public, stakeholders, Parliament, the courts, and our trading partners will accept that the new methods are both effective and appropriate? How can we boldly innovate without damaging the credibility and legitimacy of our regulatory regimes?

I. What Should We Do With the Regulation We've Got?

The existing stock of regulation is not receiving the attention it deserves. The challenge facing Canada is to ensure that outdated, inflexible and ineffective regulation is eliminated while continuing to protect the health and safety of Canadians and the environment. Maintaining a modern and flexible regulatory system has been identified as an important element in fostering innovation in Canada's Innovation Strategy. The accelerated pace of scientific and technological discoveries, for example, is putting pressure on Government's need to make policy choices that favour innovation and create a climate favourable to investment in new research and technology.

A goal of the Smart Regulation initiative, as well as Canada's Innovation Strategy, is to ensure that regulation is not only appropriate, but modern in its design and application. Reviews should be aimed at ensuring that regulation is achieving its objectives and that it does so in the most effective way. For example, effective and modern regulation depends heavily on design features of the legislation, including powers, penalties, range of available compliance responses, flexibility to develop new instruments, and so on.

Furthermore, the success of the regulatory management system is, to a large extent, measured by the quality of the outcomes. The evaluation of regulatory programs can provide key information regarding the quality of the regulatory management system.

What Should We Do With
the Regulation We've Got?

  1. What mechanisms could be used to ensure that regulation is up-to-date, effective and minimally invasive and burdensome? Are review provisions in selected legislation effective?

  2. Should all regulatory proposals include a plan for future review and assessment, along with proposed results-based performance indicators, identified objectives, and a plan for data collection?

  3. What should be included in mandates for review? Should they explicitly include assessment of alternative approaches and adequacy of compliance and enforcement tools?

  4. Should government develop a more formal mechanism by which stakeholders can express their views on outdated, ineffective, inefficient or unnecessary regulation?

  5. What role can stakeholders play in reviews and how should their participation be encouraged?

J. Holding Government Accountable

One of the major objectives of the External Committee on Smart Regulation is to ensure that the Federal Government is accountable for its regulatory legislation and regulatory actions. The analysis of regulatory impacts and review of regulatory performance are intended to contribute substantially to accountability. Improving performance indicators for regulatory programs and developing performance indicators for the regulatory management system will also improve accountability.

There are methods in place to ensure that Government is held accountable for its actions. The Auditor General and the Commission for Environmental Sustainability, for example, play important roles in ensuring accountability. The Improved Reporting to Parliament initiative of Modern Comptrollership is intended to improve accountability by ensuring that the representatives of the people, Parliament, are kept informed of the actions of Government. These accountability systems could be strengthened, however.

One approach is to improve the "contestability" of government actions. Policy development in regulation is based on a number of considerations and assumptions, all of which should be subject to review and debate. Reviews of existing programs are also based on assumptions, data and methodologies that may also be subject to debate. Part of the initial logic of the current regulatory management system was that government analysis and review would be challenged by outsiders anxious to see government regulate effectively. This expectation has not been realized, but it may be possible to create incentives that promote "contestability." Just as competitive markets are more efficient and effective at providing consumer choice, competition in ideas about regulation and solutions to problems can lead to more efficient and effective regulation and policy choice.

How can Accountability be Improved?

  1. How can government improve its accountability for the use of regulation? Should it report annually to Parliament and the public on its collective use of regulation, with total assessed costs and benefits, during the past year?

  2. Should all regulatory proposals include a plan for future review and assessment, along with proposed results-based performance indicators, identified objectives, and a plan for data collection?

  3. Should the report include the regulatory management program itself, using performance indicators developed according to the criteria mentioned above?

  4. How can outside assessment of the government's regulatory actions be encouraged?

  5. How can the private sector, including academic institutions or other independent bodies, be encouraged to provide independent critiques of impact analyses, methodologies, RIASs, regulatory programs, program evaluations, and performance measures?

  6. Should submissions to Cabinet on regulatory policy, new legislation and regulations be accompanied by information on performance assessment arrangements, including proposed performance measures?

4. Stepping Back and Looking at the Whole System

The various elements of the existing regulatory regime were originally designed with an understanding that they were not simply a set of disconnected process requirements and institutional arrangements. They were recognized as parts of an integrated governance system whose performance over time would be shaped not only by how well the individual components worked on their own, but also by how they worked together. Design choices were made with an eye to sustainability and continuous improvement of the regulatory management system as a whole.

This strategic approach to regulatory process design is fundamentally sound and the Committee believes that a "systems thinking" discipline should be applied when formulating any proposals for further reforms to the regulatory management regime.

Looking at the Whole System

  1. Taken together, will the aggregation of your proposed changes in various elements of the regulatory management regime increase or decrease the government's ability to achieve the economic, social, and environmental objectives sought by the Smart Regulation Initiative?

  2. Taken together, will your proposed changes enhance or degrade sustainability of an effective regulatory management regime?

  3. Taken together, will your proposed changes create a system that fosters continuous improvement in all aspects of the regulatory craft?

5. Conclusion

The External Advisory Committee on Smart Regulation is seeking information and advice about how to improve Canada's regulatory system. The Committee believes citizen involvement and transparency are key to creating a regulatory system that reflects Canadian values and has the capacity and flexibility to deal with the rapid pace of change in the modern world. This is an opportunity for stakeholders to contribute to the creation of a truly modern and flexible system and the Committee welcomes their comments, stories, and recommendations.

Last Modified:  8/30/2004

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