Best practice principles for licensing and permitting

Key messages

Licensing and permitting (L&P) are the formal authorisations governments may require before certain activities can begin, like driving a car, launching a new medicine or building a hotel. These systems are among the most widely used regulatory tools: virtually every business and household interact with them at some point. Their core purpose is to make sure that risks are duly managed – whether to people’s health and safety, to the economy, or to the environment – before those risks can materialise. “Risk” here means how likely harm is to happen and how serious that harm could be. As such, L&P are one of the core areas for regulatory simplification and performance.

Because they are used so extensively, the way L&P systems are designed has major consequences. If overused, fragmented, or too slow, they can create unnecessary costs, delay projects, and weaken governments’ ability to address today’s pressing challenges. Rapid technological change, challenges with productivity growth, the need to address the major environmental challenges of our time, as well as high citizens’ expectations for government to provide rapid and agile responses require more careful assessment and design of L&P.

• L&P should be used with care. They should be used only where truly necessary, focusing on high-risk activities where harm could be irreversible, and risks cannot effectively be managed once the activity has started. In lower-risk areas, other tools may be more effective. Using L&P where it is not needed wastes time and resources of both governments and businesses.

• A risk-based approach is essential. Where L&P is used, requirements must be proportionate to the level of risk. Strict conditions should apply only to high-risk activities that cannot be effectively managed after the fact, while lighter, more flexible approaches should govern lower-risk activities.

• L&P systems should be streamlined. Removing excessive requirements, simplifying fragmented procedures, and reducing delays can promote innovation and investment, and strengthen the ability of governments to respond quickly in times of crisis.

• Smarter L&P systems should be designed to build trust. When governments focus on real risks, citizens are genuinely safer, but when procedures create only the appearance of safety without addressing actual risks, confidence in regulation and institutions quickly erodes.

• The OECD Best Practice Principles on Licensing and Permitting offer a roadmap. They help governments design risk-focused, faster, and fairer L&P systems that protect people, enable investment, and respond effectively to today’s interconnected challenges.

What Licensing and Permitting is and why it matters

Licensing and permitting are tools governments use to give formal approval before certain activities begin to manage risks and protect society, the economy or the environment. They are most relevant when risks are high, irreversible or difficult to manage ex post – for example, opening a mine, operating a childcare centre, or approving a new medicine. In such cases, waiting until harm occurs is too late. Only in these situations can L&P help protect public interests, enable innovation to happen safely, and provide reassurance that government is acting responsibly.

The problem: When Licensing and Permitting goes wrong

In practice, licensing and permitting have often become the default response to uncertainty or public pressure, even for low-risk activities, which creates a perceived sense of control and safety. This tendency has created systems that are frequently overbuilt, slow, out of step with actual risks and can cause:

• Unnecessary burdens: in 17 out of 38 OECD countries, a license is required just to open a retail shop, even though selling clothes or books is typically very low risk (OECD, 2023[1]). That is time and money spent on paperwork, not on serving customers, creating jobs, or protecting people. Such requirements can restrict access to markets, create barriers to entry for new entrepreneurs, and distort competition.

• Delays and costs: From opening a bed and breakfast to launching a medical device start-up, multiple and fragmented layers of approvals can take months or years, discouraging investment and slowing innovation. L&P systems have become too complex, too slow, and too disconnected from actual risks involved, across sectors and according to a majority of Business at OECD (BIAC, the OECD’s institutional private sector stakeholder) member organisations (see Figure 1).

• Crisis vulnerability: During emergencies, such as a pandemic or an energy shortage, approval delays prevent fast action to protect public interests and can be costly and dangerous, for example when approvals for producing or importing protective equipment or medical products come too late.

• Fragmentation: Rules often differ not only across countries but also between domestic ministries, regions, or municipalities, creating duplication, contradictions and confusion. This is especially true for cross-border or multi-sector projects.

• Eroding trust: Citizens may believe L&P guarantee absolute safety. When failures occur, trust in government and regulation can erode regardless of how strong or weak the system is, but the impact is even greater when failures reveal weaknesses in the L&P framework. Moreover, when L&P are used to generate revenue or, worse, to extract informal payments, they not only fail their purpose but seriously undermine trust in government.

Figure 1. Businesses highlight lack of risk-based approach and clarity in L&P processes

Note: Data reflects aggregated replies from national member and observer organisations of Business at OECD (BIAC), offering the perspectives of leading business and employers' organisations across 27 OECD Member countries and 4 Accession countries. Two national member organisations of BIAC from each of Germany and Türkiye answered the OECD survey. Their answers are shown without any weighting in the aggregated results. Survey replies from businesses were collected in collaboration with BIAC.

Source: Simplifying for Success BIAC (Business at OECD) survey results 2025.

Why smarter Licensing and Permitting matters now

Today’s challenges place new demands on governments and their regulatory systems. Rapid technological change requires L&P processes that can keep pace with innovation. The risks of inaction on climate change mean approvals for renewable energy projects cannot be unduly delayed. And in times of crisis, such as public health emergencies, governments may need to temporarily lift or adapt licensing requirements to act swiftly and prevent potential harm. L&P systems must evolve to meet these realities while still protecting people and the environment.

At the same time, governments must weigh different types of risks to find the overall best solution. For example, authorising a new sports or music venue involves considering social risks such as noise, traffic, and neighbourhood disruption as well as public security matters alongside the broader risks of inaction, such as fewer opportunities for recreation, culture, and job creation. The real challenge for L&P systems is to make these trade-offs transparently and fairly while prioritising action towards the highest risk.

A risk-based approach is key, allowing authorities to focus stricter tools where risks are high, and use lighter approaches where risks are lower (see also Figure 2):

• High-risk activities: L&P may be warranted where risks are significant, particularly when harm could be irreversible, such as permanent contamination or biodiversity loss.

• Low-risk activities: Lighter approaches are often more effective. For example, information and awareness-raising campaigns can promote safe practices in areas like food delivery or domestic home care services, without the need for formal approvals.

A risk-based approach helps authorities make those calls, ensuring that interventions are proportionate, targeted, and effective, and that they are only done if and where needed. In all cases, requirements should remain proportionate to the level of risk.

Figure 2. A risk-proportionate approach to L&P

Source: (OECD, 2025[2]), Best Practice Principles for Licensing and Permitting, OECD Publishing, Paris.

Yet, many countries still lack systematic risk assessment in licensing and inspections: in over 50% of OECD members, enforcement authorities do not apply risk criteria when targeting inspections or monitoring activities (OECD, 2025[3]), leading to wasted resources on low-impact activities while serious threats go unchecked. This weakens resilience and slows responses to crises.

Smarter systems also help rebuild public trust. Citizens want to see that governments focus on what matters most: protecting safety, enabling innovation, and responding to real risks. When L&P procedures are simpler, clearer, and visibly tied to real outcomes, people are more likely to trust both the rules and the institutions that enforce them.

The OECD Best Practice Principles for Licensing and Permitting

The new OECD Best Practice Principles for Licensing and Permitting bring together, for the first time, international good practices within and beyond OECD member countries, at different levels of government and across sectors on how to make L&P systems risk-focused, faster, and fairer.

They provide governments with a practical roadmap to design, implement, and enforce L&P systems that protect public interests while also unlocking innovation and investment. The Principles respond to today’s context – where governments face mounting pressure to accelerate the digital transition, address global crises, and restore public trust – by offering concrete, actionable guidance.

The Principles help governments:

• Make smarter decisions – by using evidence and risk to guide when and how licensing is needed. For example, they support removing unnecessary permits for low-risk activities like opening a retail shop, while strengthening requirements where risks are high, such as in chemical manufacturing or meat processing.

• Enable transformation – by setting conditions that support the digital transition and addressing environmental challenges, encourage innovation, and allow rapid response in times of crisis. Whether it’s fast-tracking clean energy projects or approving new digital health tools, the Principles help governments move with purpose.

• Build public trust – by setting realistic expectations about what licensing can and cannot do. When people see that regulation is focused on what matters most – for example, prioritising safety in construction rather than prescribing uniform colours or sizes – they’re more likely to trust the system.

• Align practices across borders – by offering a common language and shared standards for OECD members and beyond. This helps reduce confusion, lower compliance costs, and make cross-border cooperation easier.

In short, the Principles are a blueprint for better regulation. One that helps governments manage risk without stalling progress and deliver results that people can see and feel.

What can policymakers do?

• Focus on policy outcomes by aligning L&P with broader policy goals.

• Keep L&P proportionate to risks and limit the use of L&P to where strictly necessary.

• Link L&P with enforcement and inspections and encourage better compliance.

• Make L&P processes user-friendly by engaging with stakeholders and providing support.

• Streamline L&P processes and keep them flexible to minimise burdens.

• Ensure fairness and integrity in L&P and establish checks and balances.

Further information

OECD (2025), Licensing and Permitting: How to Manage Risks While Supporting Growth, OECD Best Practice Principles for Regulatory Policy, OECD Publishing, Paris, https://doi.org/10.1787/68fc3301-en.

References

[2] OECD (2025), How to Manage Risks while Supporting Growth: Best Practice Principles for Licensing and Permitting, https://one.oecd.org/official-document/GOV/RPC(2024)15/REV3/en (accessed on 17 September 2025).

[3] OECD (2025), OECD Regulatory Policy Outlook 2025, OECD Publishing, Paris, https://doi.org/10.1787/56b60e39-en.

[4] OECD (2024), OECD Survey on Drivers of Trust in Public Institutions – 2024 Results: Building Trust in a Complex Policy Environment, OECD Publishing, Paris, https://doi.org/10.1787/9a20554b-en.

[1] OECD (2023), Product market regulation (PMR) indicators 2023, https://www.oecd.org/en/topics/sub-issues/product-market-regulation.html (accessed on 6 October 2025).

Contact

Giuseppa Ottimofiore ([e-mail])

Yola Thürer ([e-mail])