In raising all of these problems and concerns, I certainly do not mean to suggest that the use of either process-based or performance-based regulation is, on balance, a negative for regulatory quality. Rather, I want to highlight the need for a better understanding of the nature of these regulatory tools and, in particular, of the specific regulatory contexts in which their use is being considered. Also needed is more careful regulatory design and development that takes account of this context. The following highlights major issues in ensuring this is achieved.
This implies one must:
understand the nature of the risks being regulated and the possible solutions before determining what form of regulation is preferred;
only use process-based approaches where there are multiple risk sources and multiple possible risk controls; and
only use performance-based regulation when it is possible to specify clearly the required outcome standards and, again, where there are likely to be different ways of achieving them and/or innovation is likely to be an important factor.
When considering process or performance-based regulation, consider the capacities of regulated parties: will it be feasible and proportionate to ask them to undertake the required compliance processes?
If process-based regulation appears appropriate, consider how small business compliance issues will be dealt with.
When developing DTS standards, consider the overall volume of regulatory and quasi-regulatory material and assess this against the question of feasibility of regulatory compliance.
In this context, remember that regulation should set a framework for compliance efforts, not attempt to set out a prescriptive requirement for all conceivable circumstances.
When adopting existing materials as DTS standards, consider whether they are drafted in ways that are appropriate for interpretation in a regulatory context. If not, consider the need to draft new materials specifically for this purpose.
Consider the relationships between prescriptive, performance and/or process-based regulatory elements, ensuring that they are mutually supportive rather than antagonistic. For example, setting out prescriptive regulatory requirements but providing for exemptions to be provided where process-based alternative approaches are adopted is likely to be an effective combination. Setting out both a prescriptive and a performance-based standard and requiring both to be met (rather than either) is not likely to be effective.
Responsibility for making more sophisticated and effective choices among regulatory alternatives obviously rests primarily with regulators. However, regulatory reformers have a potentially major role to play — these issues are at the core of what the OECD calls ‘regulatory policy’.
As a first step, regulatory policy must abandon the almost uncritical promotion of these forms of regulation in favour of a more sophisticated message. A major element of this would be developing more sophisticated regulatory guidance material that looks at issues of linking regulatory context and regulatory design and goes into some detail on aspects of regulatory design.
The provision of improved advice and guidance on the use regulation should also be accompanied by the adoption of a ‘challenge’ function as one of the responsibilities of regulatory reform authorities. This challenge model already exists in some jurisdictions including, to a degree, the Australian Federal government. The issue here is necessarily broader than the question of the use of performance or process-based regulation. However, providing regulatory reform authorities with the power, or responsibility, to act positively to challenge what they believe to be poor regulatory practices could be particularly important improving the way that these forms of regulation are being used.
Finally, I suspect that this is an area in which regulatory reform authorities may themselves frequently have limited expertise and understanding. This suggests the need for significant development activity, both through research of the relevant literature and, potentially, through working cooperatively with regulators in the development and implementation of practical models combining different regulatory types.