Public governance

Being an Independent Regulator

In series:The Governance of Regulatorsview more titles

Published on July 19, 2016

book

Regulators operate in a complex environment at the interface among public authorities, the private sector and end-users. As “referees” of the markets that provide water, energy, transport, communications, and financial services to citizens, they must balance competing wants and needs from different actors. This means that they must behave and act objectively, impartially, and consistently, without conflict of interest, bias or undue influence - in other words, independently. What distinguishes an independent regulator is not simply institutional design. Independence is also about finding the right balance between the appropriate and undue influence that can be exercised through the regulators’ daily interactions with ministries, regulated industries and end-users. This report identifies the critical points where undue influence can be exercised at different moments in the life of a regulator and discusses some of the avenues for developing a culture of independence, including through interactions with stakeholders, staffing and financing.

 

TABLE OF CONTENTS

Foreword and acknowledgements
Executive summary
The why and the how of being an independent regulator
Why does independence matter? The view from the literature
How does independence work in practice? Key trends and evidence
Key bibliographical references
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MAIN findings

This publication surveys 48 public regulators in 26 countries to try and gauge their level of independence in practice and identify areas where undue influence may hinder performance. It looks at potential entry points for undue influence in financing arrangements, staff behaviour and the political cycle.   The key findings are:

  • 88% of the regulators surveyed receive annual rather than multi-annual budget allocations, which can increase the risk of undue influence.
  • Most of the regulators have their head appointed by the government’s executive branch. In 15% of cases, the appointment is made by parliament. Only eight regulators use a search committee for hiring a new Chair.
  • Over half the regulators place no restrictions on pre-or post-employment of professional staff, opening the risk of "revolving doors" and conflicts of interest with industry.
  • Only a quarter of the regulators are given a government statement of expectations on their conduct. Such formal statements can be useful to clarify roles, goals and activities.
  • Regulatory independence is not an end in itself but a means toward ensuring effective and efficient public service delivery by market players.
  • Independence is not static, but is an active objective which regulators must be prepared to approach continuously, requiring a mix of formal and informal, de jure and de facto elements.
  • The life of a regulatory agency is fraught with potential entry points for undue influence, from issues linked to finance, leadership, staff behaviour to links to the political cycle. A real culture of independence will help navigate these “pinch points”.
  • Independence cannot come at the price of accountability or engagement. Regulators need to be part of a well-functioning and transparent governance-ecosystem. Keeping their fingers on the pulse of the market through interaction with industry and consumers and having effective interactions with government institutions. 

 

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