Designing Effective Regulations
by
David C. Elliott
1997
Contents
Introduction
Components of regulating
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Substantive rules
Administrative components
Compliance strategies
Conflict management
Accountability components
Why regulations fail
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The regulation is misdirected
The cost outweighs the benefit
The regulation becomes outdated
The enforcement mechanism doesn't work
The regulation is inaccessible
Standards development
Conclusion
Introduction
[This one-of-a-series of commentaries on Regulatory Reformation suggests guidelines for
designing effective regulations.]
Regulations today is pervasive. Hardly and activity is untouched by government
regulation.
Governments throughout Canada face a regulatory challenge. Poor regulatory practices
cause public cynicism, fail to meet policy objectives, result in non-compliance, impose
unnecessary bureaucratic requirements, and impose unnecessary costs for both the
regulated and the regulator.
Good regulation takes time, thought, and usually some form of consultation aimed at
reaching consensus. All three of these elements are in short supply. As a 1992 Canadian
House of Commons Finance Committee described it, regulation is not necessarily bad,
but too often we have bad regulation.
In this series of commentaries on Regulatory Reformation, "regulation" is used in the
broad sense of a law directing or prohibiting conduct or action whether the law is in the
form of an Act, regulation, bylaw, or rule.
Other commentaries in the Regulatory Reformation series are

Assessing the Need for Regulation

Enforcing Regulatory Scheme

Preparing Drafting Instructions for Legislation
The commentaries are available, free of charge from:
David C Elliott
Legislative Drafting Services
Email: words@davidelliott.ca
Components of regulating
In a regulatory scheme of any significance there are the following components
(1) Substantive rules,
(2) Administrative components,
(3) Compliance components,
(4) Conflict management components, and
(5) Accountability components.
Designing an effective regulation requires careful attention to each of these components
to ensure they work well as a comprehensive whole.
(1) Substantive rules
These rules express public policy. They affect how people deal with each other and the
government. A careful analysis shows which rules should be in an Act, which in
regulations, and which should be left to the discretion of those administering the
legislation.
Consultation and collaboration in developing new law is now generally regarded as
desirable, if not essential. Designing effective consultative and collaborative processes
has become a fine skill in itself. New models for these processes are being developed,
often aided by the regulatory negotiation experience of the United States.
A good consultative process is indispensable because it

helps inform the regulator,

legitimizes the regulation for the regulated, and

improves compliance.
Collaboration helps regulators better appreciate the effects of their actions and uncovers
better ways to achieve regulatory aims. It also allows those affected by regulatory
proposals to participate in the decisions which regulate them
Collaboration also facilitates implementation of the regulation. Those who contribute to
making a regulation are likely better informed about it and more accepting of its
requirements. They are also more likely to comply with the regulation – consequently,
inspection, administration, and enforcement costs can often be reduced.
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Flawed consultative processes create their own problems. They can be seen as a means of
ratifying a predetermined solution. As the 1992 Canadian House of Commons Standing
Committee on Finance said:
We also found much ambivalence about the consultation process: stakeholders want to be
fully consulted on proposed regulatory initiatives, but resent the demands consultation
makes on their time and resources.
Precision and discretion
A regulation can be drafted with varying degrees of precision. For example, one rule says
that a "reasonable" means of exit must be provided from a building in case of emergency.
A more specific rule states the size, number, and location of exits that must be
constructed for emergency purposes. Even more specific rules may indicate the way in
which doors must open, how they must be locked, and so on.
The advantage of precise and detailed regulations is that they are clear cut and usually
readily enforceable because an offence is apparent. The disadvantage of specific
regulations is they are very narrowly forced and may not get at the underlying issue that
the rule is trying to address. Over-precision can block innovation and creativity.
The advantage of general rules is their breadth of coverage and flexibility of application.
With a flexible general rule:

there is both room for negotiation about compliance and potential for innovation
and creativity about compliance.

there may be room for mediation and facilitation in developing codes of practice
or standards of conduct, and

there is room for undertaking, warning, compliance orders, and appeals.
The disadvantage of general rules is the difficulty of enforcing them and the latitude to
argue about whether specific matters are within or outside the regulation, or whether it is
reasonable to require something to be done. How discretionary power is used and how
officials approach their work is not always clear. General rules fail if inspectors are not
trained in administering the regulation, or do not use discretion appropriately.
(2) Administrative Components
The administrative details of a regulation are critically important to its efficient and
economical operation. Setting up appropriate powers of delegation, allowing flexible
meeting arrangements (for example by electronic conferencing), and providing for use of
modern technological advances (for example in allowing filing by fax or email) all play a
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role in designing an efficient and effective regulation. One eye must be on the future
when designing systems for the present.
(3) Compliance Strategies
Typically, the people to whom regulations apply range from

well informed and well intentioned to

ill-informed and problematic.
Choosing the right type of regulation is critical. It affects efficiency of enforcement and
whether the objects of the regulation can be met. To use regulations efficiently, regulators
need to target their enforcement strategies. This calls for answers to the following
questions:

What is the objective of the regulation?

What are the key problems the regulation is set up to solve?

Who creates these problems?

Which enforcement strategies will best influence the problem creators? (See
David C. Elliott, Regulatory Reformation: Enforcing Regulatory Schemes.)
[Enforcement strategies should be viewed broadly to include incentives for
compliance as well as punishment for non-compliance.]

Which rule type best complements those strategies?
Statistics on the nature and extent of the problems - who creates the problem, where, the
circumstances, frequency, and so on - should provide some answers to these questions.
Reliable answers to these questions help to avoid

spending too much time developing and using rules that seek merely to inform the
ill-intentioned and ill-informed,

writing rules aimed at prosecuting the well-intentioned, and

applying overly-complicated, inaccessible rules for the well-intentioned but illinformed.
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Regular review of compliance strategies ensures continued effectiveness, efficiency, and
fairness.
(4) Conflict Management
The management of potential or actual conflict between individuals and groups is a major
component of regulatory schemes. Designing appropriate conflict management systems is
critically important to good regulations. Poor design results in adversarial, costly, and
time consuming processes, often with poor results. Good conflict management design
incorporates systems for

dispute prevention,

the diversion of disputes to processes preferred by the disputing parties, and

an efficient adjudicative system when all else fails.
The best processes allow disputants to loop back to the least costly and least adversarial
processes when appropriate. They encourage the parties in dispute to choose the least
costly and least adversarial processes first. The result is faster, more economical, and
more satisfactory resolution of conflict.
(5) Accountability Components
Examples of accountability in regulatory schemes include:

Inspectors keeping up-to-date with modern techniques, and technology, and
processes through continuing education,

appeal systems,
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regular and systematic reporting of activities,

setting objectives and reporting on their attainment, and

reviewing whether a regulation continues to meet the original need.
Accountability can be measured by periodic departmental reports, a report to the Auditor
General or Ombudsman, a report to a minister or committee of the Legislative Assembly,
or appointing a person to conduct a specific or wide ranging review.
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For each component of the regulatory scheme, it is useful to consider to whom or in what
way what is said in the regulation is accountable, and how. The key question is:
Does the regulation provide a way to ensure that it is doing the best job that a regulation
can do?
Why regulations fail
A regulation may not do its job for the following reasons:
(1) The regulation is misdirected
This happens when the regulation does not deal with the underlying policy objective. A
regulation can become hopelessly tangled to detail – yet miss the fundamental objective.
The move towards performance oriented regulations can help to alleviate this problem.
(2) The Cost Outweighs The Benefit
If the cost of compliance on business, industry, or public is so clearly in excess of any
benefit from the regulation, those regulated will seek ways to avoid it.
Widespread non-compliance increases enforcement and administrative costs. The original
objective of the regulation is lost if the non-compliance spiral continues.
(3) The Regulation Becomes Outdated
Without regular review, regulations become out-dated, the original objective may be lost,
need changing, or no longer need a regulation at all.
Every regulation should be subject to regular review to ensure its currency and efficiency,
to revisit the original objective, and if necessary, to repeal or revise it. The appearance of
sunset clauses in regulations helps to spur attention to regular reviews.
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(4) The Enforcement Mechanism Doesn't Work
Sometimes the tools picked to enforce regulations don't work. Practical enforcement
techniques developed in one government area may be unknown in other areas.
Sometimes new approaches to regulatory enforcement work well (e.g. Positive
compliance schemes) when the old ones (e.g., prosecutions) do not.
Without a free flow of information about regulatory techniques within the whole
government and between governments, new ideas tend to be limited to the sector in
which they are used.
(5) The Regulation Is Inaccessible
Sometimes regulations fail because they are inaccessible. Those who are reasonably well
disposed to comply with regulations tend not to follow them because they don't know
about them, because they are unwilling to find out about them, or because the regulations
are difficult to understand.
For those not well disposed to comply with regulations, the regulations also may fail
because the necessary enforcement strategy (or sanction) has not been applied. This may
result from insufficient resources, poor enforcement techniques, or unsuitable rules.
Standards development
In an increasingly international marketplace, it is likely that national and international
standards will replace local standards.
The Canadian Standards Association (CSA), an independent not-for-profit standards
writing certification, testing and inspection organization, strongly supports a system of
"voluntary" private sector consensus standards development, instead of strict regulatory
regimes. The CSA's view is that regulation should deal with the exception rather than the
rule.
The adoption of codes of standards by regulation can take one of three basic approaches.
The reference can be:
(a)
an open reference – allowing continuous, rapid updating of the standard
used in the legislation by the standard setting body. This means that
government control, if any, follows changes adopted by the standard
setting body because the government cannot stop a change occurring,
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(b)
a dated reference – providing complete certainty of the standard, this
approach is more restrictive and reduces flexibility to change the standard.
Subsequent changes need to be authorized by an amending government
regulation, or
(c)
a standard copied into a regulation, which can only be changed by
amending the regulation. This approach is more costly to write and adjust,
and duplicates work already done by others, but maintains total
government control.
Governments may find themselves compelled to adopt national and international
standards for economic reasons or because of international or internal trading agreements.
As a result, governments benefit from participation in the early stages of developing
national and international standards which they may subsequently adopt or with which
they may be compelled to comply.
Conclusion
Canada has only recently become concerned with how well its regulatory schemes work
and what impact they have on society and the economy overall. Many regulatory
innovations tried in one regulated area may work well in others.
Governments would benefit by regular exchanges of views and experience about:

ways of positively reinforcing compliance,

providing a means of protecting those who give information about noncompliance,

expanded use of impute resolution techniques,

self-regulation,

wider court powers, and

privatization of inspection services.
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