OECD Regulatory Enforcement and Inspections Toolkit

Criterion 4. Responsive regulation

Enforcement should be based on “responsive regulation” principles: inspection enforcement actions should be modulated depending on the profile and behaviour of specific businesses.

Key questions:

• Does applicable legislation allow for differentiated (responsive) enforcement and provides an appropriate framework for discretion (allowing for it, but within bounds, and with accountability)?

• Is the gradation of available sanctions adequate to allow credible deterrence through escalation of sanctions (“light” enough to be used when needed, “strong” enough to outweigh potential profits from non-compliance)?

• Is there a clear distinction, but also effective articulation, between regulatory activities focusing on promoting compliance (including, when needed, by using enforcement powers), and law-enforcement activities focusing on fighting crime (conducted by police forces, public prosecutors etc.)?

• Do enforcement practices differentiate responses based on regulated subjects track record (and treat newly established businesses distinctly), risk assessment, effectiveness of different options?

Sub-criterion 4.1. Applicable legislation allows for (or, at least, does not prohibit) differentiated (responsive) enforcement and provides an appropriate framework for discretion (allowing for it, but within bounds, and with accountability)

There is strong evidence that responsive regulation delivers better outcomes than uniform sanctioning of each and every violation – but laws and legal practices do not always allow for it. It is thus indispensable that legislation explicitly allows for differentiation in enforcement response (from simple warning to full weight of sanctions or prosecution) depending on the circumstances (seriousness of the violations in terms of risk, track record, overall situation in establishment, readiness to comply and improve, intent or lack thereof, dissimulation or openness etc.). Enforcement discretion should be clearly allowed (as it will anyway exist in practice), but also restrained by the application of principles and criteria (in particular risk-proportionality). There should also be requirements for enforcement structures to be accountable for their decisions (public guidelines for inspectors on decision making, annual reporting on enforcement actions, including justification).

• Evidence: contents of applicable framework and/or sector-specific legislation regulating enforcement in enforcement decisions, secondary legislation and/or guidelines on how to exercise it

Sub-criterion 4.2. The gradation of available sanctions is adequate to allow credible deterrence through escalation of sanctions (“light” enough to be used when needed, “strong” enough to outweigh potential profits from non‑compliance)

In order for the enforcement response to be credible, and to achieve some deterrence effect, the potential sanctions must be sufficiently strong to outweigh the potential benefits from violations – but they should be sufficiently flexible that there is a credible threat that inspectors and enforcement agencies will actually use them. If only very severe sanctions (e.g. shutting down the establishment) are available, then they will very rarely be used (at least in most jurisdictions) because the economic and social consequences, and potential political backlash, would be considerable. Legislation should thus foresee a range of differentiated responses, including e.g. simple warning, official notice of improvement with inclusion in a public list or display of inspection results (using the incentive of negative advertisement to drive behaviour change), through administrative fines, up to prosecution, closure, potentially punitive damages or compensation of undue profits if and as applicable etc. At the same time, inspectorates should ensure that follow up inspections are carried out to ensure full compliance in cases of the use of “softer” responses (i.e. follow up inspections after issuing a warning).

• Evidence: provisions in framework and/or sector-specific legislation empowering officials to apply sanctions, secondary legislation and/or guidance clarifying the range of possible decisions

Sub-criterion 4.3. Clear distinction, but also effective articulation, between regulatory activities focusing on promoting compliance, and law-enforcement activities focusing on fighting crime

In order to develop an effective and efficient, risk-based, responsive inspection and enforcement system, it is essential that its activities and goals be distinguished from that of the crime-fighting, law enforcement system.1 The former focuses on promoting compliance among the vast majority, which are either voluntarily compliant or likely to become so given adequate incentives (information, legitimacy of rules and institutions, social norms, and deterrence). The latter targets those that are clearly criminal and do not react to other incentives – and it should have the right instruments at its disposal, which are fully distinct from those of regulatory inspections and enforcement. Articulating clearly this distinction in legislation, institutions and practices is important to develop inspection and enforcement institutions that gain legitimacy among and active co‑operation from those they regulate. Having effective information exchange, and clarity on how to share responsibilities between these two types of enforcement, is just as essential in order to address the whole spectrum of business operators, risks and violations. Regulatory inspections should be clearly distinct from law enforcement in the criminal sense, but they need a link to this law enforcement in order for the system to avoid gaps.2

Fulfilling this criterion can be achieved in a number of ways, but fundamentally it requires that the mission of inspections and enforcement agencies be seen as the maximisation of compliance levels, and not the systematic detection and punishment of each and every violation. It thus requires that legislation gives these agencies appropriate discretion to handle different situations in different ways, including to decline to punish certain violations if they consider that they pose very little risk and can be handled without formal enforcement.

• Evidence: official government vision, mandates of inspections and enforcement institutions (official statutes, strategy documents, annual reports etc.)

Sub-criterion 4.4. Enforcement practices differentiate responses based on regulated subject track record (and treat newly established businesses distinctly), risk assessment, effectiveness of different options

In practice, responsive enforcement requires differentiation based on the track record of the operator, on the risk assessment (damages that the violation has already caused and/or is likely to cause, considering also the broader compliance context in the establishment), and on the potential effectiveness of different options. The latter means considering the impact of the enforcement response on future compliance both inside the establishment (likely staff and management response) and outside of it (exemplarity effect). Since individual inspectors cannot be expected to have full knowledge of all the experience and evidence that could be relevant to choose between different possible responses, the availability of sufficiently detailed guidance is indispensable – combined with strong professional skills to properly assess the situation on site. Having detailed guidance is in any case insufficient – ensuring that the actual practice of inspectors and the decisions of their management correspond to a responsive approach is essential.

• Evidence: official policy documents, annual reports data and analysis

Notes

← 1. This should not be understood to mean that it is in inadequate for an inspections and enforcement agency to have enforcement powers (including prosecutorial powers in countries where this is possible and where criminal prosecutions are an important enforcement tool). What matters is primarily a distinction of missions and purposes. Criminal prosecution as part of regulatory enforcement will be one of a series of tools in a “responsive regulation” framework, where it represents the maximal escalation for particularly egregious cases. The objective overall remains, however, compliance. By contrast, the specific purpose of law-enforcement as conducted by police forces focusing on criminal cases, and public prosecutors, is specifically to detect and punish crime – and not primarily to increase average compliance levels.

← 2. As per above, the link can be internal (in house prosecutorial powers) as well as external (information exchange with law enforcement bodies, and possibility to “escalate” matters by transferring cases to the public prosecutor).