Note from the Editor
New draft guidance and templates have been developed to support the newly released Cabinet Directive on Regulation which comes into force tomorrow, September 1, 2018. The research for this post was researched and largely developed prior to seeing the draft updated policy and template. I will post this as it represents my thinking at a moment in time, and will follow up with my thoughts on the new templates and policy guidance for developing RIASes.
Overview of Regulatory Impact Analysis
One of the vital components to developing regulations is to inform Government, stakeholders, and the public about the issue, context/background, options considered, and the impacts, economic and otherwise, as well as their distributional impacts to aid in decision making.
The OECD defines Regulatory Impact Analysis (RIA) as “… a systemic approach to critically assessing the positive and negative effects of proposed and existing regulations and non-regulatory alternatives1.”
As of 2014, 32 of 35 OECD member countries have implemented some form of formal RIA as part of the regulatory development process2.
Review of RIA guidance
Of interest to me is the varied requirements, templates and implementations of RIA around the world. Specifically, the guidance available to regulators to direct the analysis is of particular importace. I think we can learn a lot from a review of the applicable guidance from similar jurisdictions. Canada’s main RIA Guidance document is the “RIAS Writer’s Guide,” which will be eight years old this year. As Canada is currently in the final stages of it’s five year regulatory policy suite renewal exercise, it is likely that this guide will be updated in the next year to meet the requirements of the new directives. During this update, there is much we can learn from a review of what others are doing.
I have selected the following countries for my initial guidance review with links to their guidance documents:
- Canada – “RIAS Writer’s Guide” and the Low-Impact and Medium- and High-Impact RIAS Templates
- Australia – “The Australian Government Guide to Regulation” and the User Guide
- European Union – “Impact Assessment Guidelines,”
- Israel – “Regulatory Impact Assessment – Governmental Handbook,”
- United Kingdom – “Regulatory impact assessments: guide for government officials“,
- United States – “Circular A-4 – Regulatory Analysis,” and
- New Zealand – “Guide to Cabinet’s Impact Analysis Requirements.”
All of the above-mentioned countries require, to varying degrees, significant impact analysis, written in plain language, explaining the problem, historical context, policy options, as well as the costs/benefits of the various approaches. The level of detail and place in the regulatory development continuum may vary by country, but all of the nations have implemented a mandatory and standardized reporting regime for describing and analyzing impacts of proposed regulatory action.
Fast-track for simple/technical amendments
Canada has an expedited process for correcting errors, omissions, and inconsistencies (commonly linguistic inconsistencies between the English and French) in regulations. These simple technical/housekeeping amendments are known as Miscellaneous Amendments Regulations (MARs).
The MAR process is significantly faster as it uses the low impact (minimal requirements) RIAS, is generally exempt from pre-publication in the Canada Gazette, Part I. Additionally, communication plans, and many other components are not required.
The criteria for a MAR is a proposed regulation with no triaged impact which corrects one of the following:
- Errors in format, syntax, spelling, and punctuation
- Typographical errors, archaisms, anomalies, and numbering errors
- English/French inconsistencies which are non-substantive
- Obsolete regulations
- Spent regulations
In my experience, the most significant use of MARs is to address issues raised by the Standing Joint Committee for the Scrutiny of Regulations which are triaged as having no impact.
The UK has a process for “trivial or mechanical” amendments which keep the regulations in line with the original intent of the policy. This allows exempts the regulations from requiring “collective agreement,” which is to say approval of the relevant Cabinet Committee and the RRC. Additionally, the UK RIAS policy provides for a “Fast Track” process for deregulatory measures that meet certain criteria.
One-for-One and Two-for-One deregulatory efforts
Canada’s regulatory regime incorporated a system of requiring one regulatory title to be removed for every new regulation published and for an equivalent or greater administrative burden to be removed for every administrative burden imposed by new or amended regulations. These reconciliation must take place within 24 months and the requirements are enshrined in the Red Tape Reduction Act and Red Tape Reduction Regulations.
Executive Order 13771 “Reducing Regulation and Controlling Regulatory Costs” directs regulatory agencies to repeal two existing regulations for every new regulation while ensuring that the total costs of regulation do not increase. This policy builds on top of Circular A-4 and all subsequent Executive Orders.
The UK has a policy of One-in-Two-Out (OITO) which requires every pound of additional net cost imposed on business by regulation must be offset by two pounds of net savings from deregulatory measures.[
What can we learn?
Clear defined purpose
Australia provides a clearly defined series of seven questions which must be answered by the RIA (or RIS in AU terms):
- What is the problem you are trying to solve?
- Why is government action needed?
- What policy options are you considering?
- What is the likely net benefit of each option?
- Who will you consult about options and how will you consult them?
- What is the best option from those you have considered?
- How you will you implement and evaluate your chosen option?
These questions may look extremely familiar for anyone involved in policy analysis as these seven questions frame the key questions that a strong policy paper should seek to answer. While Canada clearly advocates the same complete analysis, I believe clearly defined policy questions like these placed prominently within the RIAS Guidance send the signal that you cannot avoid the policy work necessary to strong, evidence-based, and transparent regulatory action.
Post-Implementation or Ex Post Facto Regulatory Review
The United Kingdom, Australia, New Zealand, and Israel mandate departments review regulations on a period basis.
Canada and the United States have all regulations referred on a permanent basis for review. In Canada, all regulations are permanently referred to the Standing Joint Committee for the Scrutiny of Regulations which is reviews regulations against thirteen criteria, but does not review to ensure regulations are achieving the intended goals. The United States requires various departments to post a plan for regulatory review of all regulations which impose burdens on businesses.
Canada current has no central requirement for regulating departments to review regulations on an ongoing basis (although this is highly encouraged in policy). With the coming-into-force of the Cabinet Directive on Regulations, these requirements are expected to change and once the policy is official, I will outline my thoughts. I believe that the best practice would be to require Ex Post Facto reviews of all regulations on an ongoing basis. I believe that the American policy of requiring a regulatory review plan to be published for each planned regulation would be ideal for the sake of transparency. Additionally any post-implementation review should consider whether or not the regulation is achieving the desired policy outcomes, impacts to stakeholders through consultation opportunities, and should seek to reduce burden and barriers to trade through regulatory cooperation wherever possible.
Emphasis on analysis of impacts to Small Businesses
All of the guidance reviewed placed a specific emphasis on determining the effects on small businesses, developing flexible options, and in the case of the UK and Canada formalized an increased burden on completing the RIAS with respect to small businesses.
Given that small businesses comprise that vast majority of Canadian businesses, it is essential to understand the impacts of proposed regulations on the small businesses. Additionally, providing flexible options for small businesses can offset the potentially disproportionate impact of regulation on these businesses.
All reviewed guidance contained clear requirements to provide in-depth Cost-Benefit Analysis of regulatory proposals.
The UK guidance went a step further (emphasis mine):
“Government will regulate to achieve its policy objectives where the analysis of costs and benefits demonstrate that the regulatory approach is superior by a clear margin to alternative, self-regulatory or non-regulatory approaches.”
The importance of the Cost-Benefit Analysis to the decision-making process cannot be overstated. We need strong policy and challenge functions to ensure it is objective and does not selectively include criteria that supports the policy objective to regulate. All options must be considered thoroughly, including status quo, policy alternatives, self-regulation, etc.
The vast majority of guidance was consistent on all major requirements for Regulatory Impact Analysis. Each jurisdiction approached the RIAS in different ways. Australia, used the RIAS to ensure the policy was complete and all of the best public policy practices had been thoroughly researched and discussed. The United Kingdom uses a much more formal structure for regulatory proposals based on a series of flow charts which lead to various committees or groups reaching agreement on the princples of the regulations.
I feel confident that Canada is well-positioned among its peers in the regulatory guidance it provides and the requirements necessary to complete a RIAS. I will provide an update once the Cabinet Directive on Regulation and all associated policy material is publicly released in the next few weeks.