Licensing and Permitting

Overview

Licensing and permitting (L&P) are known by various terms, such as permissions, approvals, authorisations, licenses, or permits, and carry different definitions depending on the jurisdiction. In this report, L&P refers to regulatory tools and processes that provide formal ex ante approval – meaning approval before the activity begins – for individuals or businesses to engage in specific activities. These activities may be one-off, such as building or installing infrastructure, or ongoing, such as selling alcoholic beverages or producing low-carbon energy, operating a meat processing facility or using specialised machinery. Although in some countries L&P are distinct terms, both are used as synonyms throughout this paper.

As an ex ante intervention, L&P is a “go or don’t go” process, and it should be used with caution and restraint. L&P differ from other regulatory tools in that they focus on risk prevention before an activity begins, blocking or allowing market entry or start of works, rather than regulating ongoing operations or addressing issues after they arise. This approach aims to mitigate potential risks at the outset but can also have significant negative economic and social effects (Kleiner, 2017[1]). Other regulatory instruments, such as regulatory enforcement and inspections, typically come into play at later stages (OECD, 2014[2]) (OECD, 2018[3]).

Depending on the jurisdiction, L&P can play a role in a wide array of activities, from obtaining a driving license to opening a business, constructing a building, or managing hazardous materials. L&P also involve granting approval for projects such as an infrastructure development, mining operations or commercial fishing. L&P can be granted by a variety of public bodies, including national or local governments, as well as specialised public agencies or authorities.

Applicants requesting a license or permit can include individuals (i.e. a driving license or a home extension permit) and businesses (i.e. operating a mine or exploiting a fishery). For individuals, the process is generally simpler, focusing on personal qualifications or compliance with local regulations, such as safety and zoning laws. In contrast, businesses typically face a more complex process that can involve multiple layers of regulatory scrutiny, environmental assessments, and ongoing monitoring to ensure compliance with industry-specific standards, public safety, and sustainability goals. Given the multitude of public bodies involved, businesses must often engage with more than one agency and provide detailed operational plans, financial assurances, and risk mitigation strategies.

L&P may be required in various situations, depending on the activity and the applicant. For example, when a citizen applies for a business license or when a newly established company seeks market entry in a regulated sector such as pharmaceuticals or finance. It also occurs when an existing company expands into a regulated area such as energy production or the operation of electronic communications networks and services, or when a previously unregulated sector – such as cryptocurrency or drones – becomes regulated, requiring businesses to comply with new L&P standards. Licenses and permits also play a role when companies modify their operations, such as adding new product lines, changing their manufacturing processes, or expand into different geographical areas. In many jurisdictions, broad L&P requirements – such as general business or factory licenses – are imposed on a wide range of activities, sometimes without a clearly defined risk-prevention rationale.

L&P can also serve as a mechanism to manage limited or scarce resources, such as spectrum, water, or land. In such cases, licenses are often time-bound to ensure periodic review or reallocation. While time-limited licenses may be appropriate in specific contexts, overuse of this approach can introduce risks – such as opportunities for abuse or corruption or reduced incentives for long-term investment – and create unnecessary burden. In most cases, compliance can be more effectively ensured and addressed through inspections and enforcement mechanisms. Necessary measures to manage risks can still be requested to license holders without the need to mandate periodic license renewals.

L&P can be used to manage risks before start of works or market entry

L&P can be used to reduce and prevent risks created by businesses and individuals in their operations before they start their activities. L&P require applicants to meet specific criteria, demonstrate compliance with regulations and standards and show that they can adequately manage and mitigate risks that may be created by the activity. This provides governments with a structured regime to make sure that goods or services do not impact negatively on public health, safety or the environment before they enter the market. By setting and enforcing ex ante requirements with L&P, governments can protect consumers, workers, neighbouring communities and the environment from potential hazards.

If properly designed, L&P can also foster trust by setting clear standards for which individuals and businesses are allowed to operate (pilots are licensed to ensure a safe flight, architects are licensed to ensure houses do not collapse). According to the OECD Trust Survey, evidence-based decision-making and institutional accountability are among the key drivers of public trust (OECD, 2024[4]).

L&P can generate valuable data and insights that can inform policy decisions and regulatory improvements. As an ex ante regulatory tool, they provide essential information about the ability of individuals and businesses to comply with rules that aim to safeguard public interest and promote accountability. For instance, if an authority collects and analyses data on food operators’ licenses and correlates it with food safety inspection results, it may find that certain neighbourhoods consistently have higher violation rates (OECD, forthcoming[5]). This insight can lead to targeted outreach and compliance promotion programs for those areas and additional training for businesses. Such data can enable more effective and efficient risk-based regulatory enforcement activities by helping authorities allocate resources where risks are highest and tailor interventions accordingly.

Over-use of L&P can harm competitiveness and economic growth

While L&P plays a role in managing high-risk activities, they can be relied on excessively as a default solution, often driven by risk aversion. Over-use of L&P can impose significant administrative and compliance burdens and the tool should therefore be used selectively and proportionately. In many cases, ex post or alternative tools – such as inspections, market surveillance, and liability regimes – can be more effective and less intrusive mechanisms for achieving regulatory objectives.

Where L&P are used, governments must ensure that processes are streamlined and do not create unnecessary complexity or delays. Requiring a license for low-risk activities – such as small home-based businesses like pet grooming – may be disproportionate, especially if procedures involve extensive documentation, multiple approvals, or unclear criteria. These burdens can discourage entrepreneurship and innovation, distort competition, increase prices and waste public resources. Small businesses and individuals are particularly burdened by these processes, often lacking the resources to navigate detailed requirements and lengthy timelines. “Horizontal licenses” required from all types of businesses (or from an entire macro-sector, such as “all trade” or “all manufacturing”) are another example of excessive, indiscriminate use of L&P. These licenses create important burden and barriers while, not being focused on specific risks, they provide little to no benefits in terms of public welfare. It is important to consider L&P as a specific intervention choice, bringing significant costs to economic actors, which should be used only after proper analysis considering whether alternatives would be more suitable.

In some contexts, overly complex L&P systems may create opportunities for corruption or abuse – for example, when L&P may be used to extract bribes or generate revenue. When combined with unrealistic public expectations about the safety outcomes L&P can deliver, such systems risk undermining public trust.

L&P systems can also be inconsistent across jurisdictions, adding to regulatory complexity. For example, minor activities such as hanging laundry or catching mice require a license in some areas, creating confusion and inefficiency. In smaller markets, individuals may hold multiple licenses (such as electrician and plumber licenses), while in larger markets, these roles are separately licensed. In federal countries, different rules can apply across regions, further complicating the regulatory landscape. While regional variations may sometimes be necessary to reflect local risks, such inconsistencies can hinder business operations, particularly for those working across multiple regions or borders. This may be especially relevant in decentralised systems or within the EU, where divergent L&P requirements can pose barriers to cross-border economic activity and integration.

It is therefore paramount that L&P are used only when necessary. Where L&P is deemed necessary, the type of intervention and level of requirements should be proportionate to the level of risk. Governments and licensing authorities must balance the goals of public safety and market growth by reducing unnecessary bureaucracy. Clear information and consistent regulations across regions are essential to help individuals and businesses comply with L&P requirements and reduce risks for people and the environment.

These Best Practice Principles support the use of L&P to manage risks while supporting growth

It can be a difficult juggling act to balance protection and safety of individuals and the environment and with market development. Continuous efforts are needed to ensure that, when used, L&P are meaningful, effective, and efficient regulatory tools that support competition and growth. Providing clear guidance on how L&P systems work can support governments and licensing authorities with improving L&P processes and ensuring these achieve their intended objectives.

In recent years, the OECD has expanded its work on regulatory delivery, including L&P, regulatory enforcement, and inspections to ensure that implementation of rules is risk-based, evidence-informed, outcomes-focused, and human- or business-oriented (OECD, 2014[6]; OECD, 2018[3]). This work supports the implementation of OECD legal instruments, most importantly the OECD Recommendation on Regulatory Policy and Governance [OECD/LEGAL/0390] adopted by the OECD Council in 2012, the Recommendation for Agile Regulatory Governance to Harness Innovation [OECD/LEGAL/0464] adopted in 2021, and the Recommendation on Human-Centred Public Administrative Services [OECD/LEGAL/0530] adopted in 2024. It also complements the OECD Best Practice Principles for Regulatory Policy series, including the Principles on Enforcement and Inspections (OECD, 2014[6]), the Governance of Regulators (2014[7]) and One-Stop Shops for Citizens and Business (2020[8]), as well as other relevant OECD reports, including the Regulatory Enforcement and Inspections Toolkit (2018[3]), Data‑Driven, Information‑Enabled Regulatory Delivery (OECD, 2021[9]), Improving Regulatory Delivery in Food Safety (OECD, 2021[10]), Risk-based Regulatory Design for the Safe Use of Hydrogen (OECD, 2023[11]) and Experimenting with Digital Tools to Enhance Inspections (OECD, forthcoming[5]).

The Best Practice Principles consolidate work on L&P by offering guidance to governments and licensing authorities on improving their L&P processes and setting the stage for future developments in this area. Rather than a step-by-step implementation guide, these principles serve as high-level guidelines to support the streamlining of L&P processes. They provide outcome-oriented recommendations to help governments and licensing authorities enhance their approaches.