Taking a whole of system approach is a key aspect of
successful management of regulatory systems. This article suggests it is not
happening as effectively as it might and it is time for a revised approach.

The
framework for management of regulatory systems in New Zealand

The management of regulatory systems in New Zealand
happens within the Regulatory
Management System
(RMS), described
as:

“…the set of policies,
institutions, processes and tools employed by central government to pursue and
maintain good quality regulation[i].”

The Treasury manages the RMS. Essentially; it is a
framework for governance of the meta-system of regulation in New Zealand. The meta-system
incorporates a series of regulatory systems – examples include what the
Ministry of Business, Innovation and Employment refers to as the ‘consumer and
commercial system’ and the ‘health and safety system’; and what the Department
of Internal Affairs refers to as the ‘anti-money laundering system’ and the
‘gambling system’, to name just a few.

Key features of the RMS include:

  • Regulatory stewardship expectations which require agencies to
    adopt a whole of system approach to a regulatory system, which relies on taking
    a proactive and collaborative approach to the care of the regulatory system(s)
    including taking an integrated approach to regulatory design, implementation,
    monitoring and review.
  • Government expectations of good regulatory practice which give
    agencies broad guidance on how they discharge their regulatory stewardship
    obligations
  • Regulatory impact analysis processes which is a systematic
    approach to policy analysis that involves regulatory options and considers the
    costs and benefits of those options
  • Regulatory stewardship strategies and plans which contain
    information on an agencies approach to regulatory stewardship, the condition of
    regulatory systems they work with and prioritised plans for improving those
    systems 
  • Departmental disclosure statements which are intended to provide
    factual information about the policy background, development, and key features
    of the proposed legislation.

The New Zealand Productivity Commission’s 2014 review
of Regulatory Institutions and Practices has influenced developments in the RMS.
A core issue identified by the commission was the prevalence of a “set and
forget” approach to regulation, noting:

“the regulatory system isn’t
flexible enough. We have a ‘set and forget’ mentality… until something goes badly
wrong. Government spends a lot of time thinking about new regulations, but not
nearly enough about how effective and necessary the existing stock of
regulation is.”

The RMS’ underlying premise is that regulatory systems
are assets that need care over time. The RMS intends to set in place a way of
maintaining the quality of the numerous regulatory systems that operate in New
Zealand, and act as an antidote to the “set and forget” mentality.  The current fragmented methods of assessment,
monitoring and review of regulatory systems reduce the likelihood these
intentions will be met.

The current
practice of regulatory systems management

Institutional design

Before
describing the current practice of regulatory systems management, it is worth
reflecting on the organisational structures that deliver regulatory policy, regulatory
stewardship activities and operations.

In
short, two models exist – integration or separation between policy and the
ownership of stewardship strategies and plans, and operations. 

Integration in one organisation

  • The same
    ministry or department
    owns the policy, stewardship strategies and action
    plans, and operations (for example, gambling regulation in the Department of
    Internal Affairs or immigration regulation in the Ministry of Business,
    Innovation and Employment).

Separation between organisations

  • A ministry or
    department
    owns the policy and stewardship strategies and plans, and operations
    are in a crown entity or independent
    board
    of some form.  There are three
    forms of crown entity with varying degrees of independence from government –
    crown agents (like Maritime NZ, with policy in the Ministry of Transport),
    autonomous crown entities (like the Broadcasting Commission, with policy etc.
    in the Ministry of Culture and Heritage), independent crown entities (like the
    Privacy Commission, with policy etc. in the Ministry of Justice).  There are various forms of independent boards
    (like the Plumbers Drainlayers and Gasfitters Board, with policy etc. in the
    Ministry of Business, Innovation and Employment).

A fragmented approach

The
approach to regulatory systems management is fragmented and has features that
raise questions about its efficacy. 
Features include:

  • Ministries and
    departments (whether they have integrated responsibility or not) are
    responsible for defining the scope of the regulatory system for the purpose of
    review, and self-reporting on the quality and plans for improvement of that
    regulatory system. Defining the scope of the system is important. It sets the
    boundaries for assessment.  It can
    potentially be attractive to define a scope that reflects things that the
    agency has control and influence over, or the statutory frameworks the agency
    administers.  This can potentially drive
    a definition of system scope that is not reflective of the totality of the
    system and its intended outcomes, given that the majority of systems have more
    than one statutory framework and agency involved (sometimes multiple policy and
    operational agencies operating in respect to various statutes may contribute to
    delivering outcomes within a regulatory system). 
  • The assessment tools
    ministries and departments use may or may not be consistent with those used by
    other agencies to do similar work (note that in June 2019 Treasury reported
    that departments have started to assess the fitness-for-purpose of their
    regulatory systems using common dimensions of effectiveness, efficiency, durability
    and resilience, and fairness and accountability).
  • Self-reporting of
    weaknesses and problems may potentially be difficult as it could reflect on the
    performance of the agency, undermine confidence and damage reputation.
  • There is apparently a
    difference between the way monitoring of regulatory systems occur. In the integrated
    model agencies undertake policy development, stewardship strategies and plans,
    and operational delivery and then self-report. 
    Where the regulatory system has a separate Crown Entity or Board
    carrying out the operational delivery, specific monitoring activities occur,
    also carried out by the agency responsible for the policy development (and then
    for self-reporting on the quality of the regulatory system as a whole as part
    of their stewardship strategy and plan work). 
  • People separate to
    those responsible for the policy work often carry out this monitoring. They may
    or may not have regulatory knowledge and experience.
  • There is a much
    stronger focus on assessment of agency performance, compared to regulatory
    system performance, in regulatory systems where there are separate operational
    agencies.  This is in addition to those
    operational agencies being already subject to the same system wide
    accountability requirements that apply to the policy and operational functions
    in integrated agencies, as well as having a governance Board. If there is a
    need for greater focus on the performance of those responsible for activity
    within regulatory systems, surely, this applies across the board – problems
    with the design and implementation of regulatory systems occur across organisational
    forms.
  • The monitoring activity
    rarely ‘looks back’ into the policy and regulatory framework issues that might
    be affecting the ability of the operational agency to do its work well.
    Consider this against the background that the performance of operational
    regulators relates directly to ‘fit for purpose’ nature of the regulatory
    frameworks they give effect to. These frameworks are often out of date. Policy
    functions (in the agencies that monitor them) are often challenged by other
    priorities (see reference above to the “set and forget” approach) and do not
    keep them up to date.
  • Sometimes, in the view
    of the operational team or agency, the basic design of the frameworks
    undermines effective operational (compliance) activity and therefore system
    performance.
  • It seems likely that
    under the current approach the level of monitoring (with the weighting towards
    organisational performance compared to regulatory system performance) will
    increase following the review of the New Zealand Transport Agency where the
    quality of monitoring was in question.

The above points indicate that there are
different arrangements for executing the RMS. On the face of it, there are questions
about it delivering the whole-of-system effects intended. 

In addition, there is a reasonable chance of
conflicts of interest in respect to the clear identification of responsibility
and accountability for poor performance of a regulatory system if an agency is
responsible for:

  • Policy development and operational
    delivery in the system, plus the  
  • Regulatory stewardship
    strategy and plans, and self-reporting or
  • Policy development,
    plus the monitoring of the operational function, and the regulatory stewardship
    strategies and plans, and self-reporting. 
    In this latter situation, it is potentially challenging for an agency to
    see clearly its own contribution to the success or otherwise of another agency
    that it is monitoring in respect to operational delivery within the same
    system.

Conclusion

Good quality regulatory system design and
implementation is critical to New Zealand’s well-being.   In addition, expectations regarding the
performance of regulatory systems, and challenges posed by rapid technological
change are at an all-time high. 

The intention of the RMS is to support a whole of system
approach in order to understand the performance of regulatory systems individually,
and the meta-system overall – ensuring fitness for purpose and avoidance of
regulatory failure. If regulatory failure does occur, a whole of system
approach is necessary to understand fully the reasons for that and create the
best opportunity for lasting improvement in the particular system, as well as
at the meta-system level.

The current method of implementation of the RMS occurs
suggests the management of regulatory systems may not be happening in a way
that creates the best opportunities for improvement at the system or meta-system
level. Perhaps it is time to rethink the way the RMS is implemented.

What are the alternatives?

Before
considering alternatives, it is worth looking at what else is in place at
present.  In addition to the RMS:

  • There is the Performance
    Improvement Framework
    model that contributes
    to regulatory stewardship, but the focus on regulatory systems is through the
    organisational lens more than the system lens and its only one component of the
    review.  It does have the advantage of
    being independent of the agency being subject to the review though.
  • There is a fledgling
    peer learning process under the umbrella of the Government Regulatory
    Practice Initiative
    .  The agency inviting the peer learning process
    scopes and drives this but it does involve a range of external senior
    practitioners in providing expert views. 
    Early indications are that this process will add a lot of value for the
    agencies seeking the peer learning and the practitioners who engage in it.
    However, it also has limitations if thought of in respect to the breadth and
    depth of consideration of regulatory systems that the RMS intends.

In summary, the current implementation of the RMS,
even with other initiatives such as the PIF and peer learning, is not
delivering the whole of system focus required to support the ongoing
improvement of regulatory systems and the meta-system of regulation in New
Zealand.

A new approach

The
introduction of a specialist regulatory meta-system monitoring agency that can
work alongside the Treasury and operate independently to scope, assess and
advise on the quality of regulatory systems needs serious consideration. This
could:

  • Remove possible
    conflicts of interest
  • Accelerate and ensure
    over time the development of a consistent approach to the assessment of
    regulatory systems, made according to system scopes that are developed without
    constraints that may be consciously or unconsciously imposed by organisational
    scope
  • Provide a centre of
    excellence for regulatory system assessment that would support the development
    of a comprehensive view of the performance of New Zealand’s regulatory
    meta-system overall (that would likely be superior to one developed from a
    series of self analysed and reported system stewardship strategies and plans,
    as is the case at present).
  • Enable broader and
    faster learning and improvement in the approach taken to regulatory system
    design and implementation in New Zealand
  • Create a stronger
    possibility of avoiding repeated regulatory failures involving similar issues
    and themes.          

It would be consistent with the centralised approach
to the monitoring of state owned enterprises to protect the value of the
Crown’s commercial interests. Why not apply a similar approach to enhance the value
of our regulatory systems, which are also a significant asset?

Got any comments or questions?  Feel free to raise them by commenting on this
article.

Keith Manch, October 2019

Note: This
article draws on 43 years’ experience working in two departments, two
ministries and three Crown Entities – including experience of monitoring Crown
Entities, and long engagement in the development of system wide regulatory
practice capability. It is not directed at any particular agencies.

This post was written by Keith Manch, the Chief
Executive and Director of Maritime New Zealand
. He has worked in the
public sector since 1977 and brings extensive leadership experience in a number
of policy and operational senior leadership positions in regulation, compliance
and response.


[i] This article assumes that the reference to maintaining ‘good quality
regulation’ incorporates the design (policy), implementation (operations) and
review of that regulation – thus it refers to regulatory strategy, policy,
frameworks (laws, regulations, rules etc.), delivery (the full range of
compliance activity which includes information, guidance and enforcement) and
review.