Equipping Agile and Autonomous Regulators

Executive summary

How an economic regulator receives and manages its human and financial resources affects its ability to deliver on its mandate and support long-term policy goals. A regulator’s staff and funding arrangements can have an important bearing on its ability to act independently and remain agile to respond to new roles and expectations. Transparent and accountable mechanisms to fund and staff regulators can bolster trust in public institutions and regulatory systems. Moreover, the capacity and ability of regulators to execute their functions effectively depends on a well-qualified and inclusive workforce and sufficient funding.

Fifty-seven regulators across 31 countries – of which 89% are independent regulatory bodies – responded to the in-depth survey on staffing and funding arrangements that serves as a basis for this report. The report analyses trends and gathers insights on challenges, opportunities and good practices. It discusses the implications of arrangements on a regulator’s autonomy and agility, the accountability and transparency of regulatory systems and a regulator’s ability and capacity. Additionally, it identifies the impact of COVID-19 on resources.

Supporting the autonomy and agility of regulators

While the independence of many economic regulators is grounded in legislation, in practice their autonomy and agility can be restricted by how they receive and manage resources. The analysis finds that:

• A large majority of regulators recruit their staff by publicly advertising positions and select new staff members autonomously, but over a quarter need to obtain approval before hiring. Requirements to obtain approval before hiring, usually from a ministerial body, can affect the regulator’s agility to respond to market developments or evolving mandates if staff numbers are restricted below the required levels or if it cannot fill positions in a timely fashion.

• Budget predictability is not always ensured. Budgets are set for a one-year period for 90% of regulators, allowing for more frequent exposure to potential undue influence (“pinch-points”) through yearly budget negotiations and, potentially, less predictability. Further, for more than a quarter of regulators, the executive is able to modify the initially approved budget without oversight by the legislature.

• While all regulators need to adhere to rules on public spending and procurement, many experience additional controls on their spending that might decrease their autonomy. Fifty-three percent of regulators can experience additional controls on their spending such as spending caps. Eighty-nine percent face restrictions to carry over funds between financial cycles, which can affect their ability to smooth revenues across cycles.

Strengthening the accountability and transparency of regulatory systems

Mechanisms such as the public substantiation of budget decisions and external evaluations of spending support transparency and accountability for most regulators. The analysis finds that:

• To provide adequate information regarding funding needs, 91% of regulators submit their costs and resources to the legislature or relevant budget authority for approval. Regulators that are not required to obtain approval still sometimes proactively share financial information to inform the legislature or government.

• Regulators are usually involved when discussing national budget appropriations or setting the fee, which could provide a safeguard against “closed door” decision making by the executive. Only 15% of regulators funded through national budget are not involved in discussions. Regulators funded through fees usually propose the level to government or the legislature (45%) or set the fee levels themselves (43% of regulators).

• A cost-recovery mechanism can support accountability by ensuring the “right” fee level, and exists for 80% of fee-funded regulators. Cost-recovery mechanisms can ensure a fair burden on fee-paying entities and prevent a regulator that is underfunded, captured by industry or undermined by the executive.

• An external evaluation of spending is in place for all regulators, which can support responsible public spending. The supreme audit institution is the body in charge of the external evaluation for 80% of regulators.

Enhancing the ability and capacity of regulators

Challenges to attract, develop and retain a well-qualified and inclusive workforce and the sufficiency of financial resources may affect the ability of regulators to execute functions effectively. The analysis finds that:

• Many regulators report difficulties in hiring well-qualified staff, especially IT and data specialists, which can affect their ability to execute their regulatory activities. Fifty-one percent of regulators report difficulties to recruit well-qualified staff for specific positions and another 21% indicate wider difficulties to recruit a sufficient head count. Difficulties occur less frequently for regulators overseeing multiple sectors, of which 15% report difficulties to recruit a sufficient head count (compared with 27% for other regulators).

• Less competitive salaries may be offset by other (non-financial) benefits to employment, such as high job stability. About three in four regulators follow government salary scales, which correlates with less competitive salaries when compared to the sector. In particular, salaries for energy and e-communication regulators compare unfavourably. However, job stability is high, with on average four in five staff members employed on a permanent contract.

• There is scope for regulators to improve gender equality as a means to enhance overall diversity and support performance. On average, regulators employ an equal share of men and women in their organisations, but women make up only 43% of senior management.

• Regulators funded through a mix of national budget and fees more frequently report a lack of funding than do other regulators. There are differences across types of regulators, with lacking funds being reported more frequently by transport regulators, and less frequently by regulators overseeing multiple sectors.

The impact of COVID-19

The COVID-19 pandemic prompted new ways of working that may continue beyond the pandemic but also highlighted potential financial vulnerabilities. The analysis finds that:

• All regulators rapidly adjusted their ways of working to new conditions during the COVID‑19 pandemic, resulting in fundamental changes to their working arrangements. Sixty-two percent of regulators indicated plans to permanently increase their use of teleworking after the crisis.

• Differences in the impact of the pandemic on their revenues might underline different levels of risk exposure in funding across regulators. For national budget-funded regulators, budgets were sometimes cut to fund national crisis responses, whereas others received additional funding for new COVID-19 related tasks. Revenues of fee-funded regulators could drop due to a decrease in fee payments or a weakened financial position of entities in the sector.