A Code of Practice on Good Guidance on Regulation
Comments from ACCA
March 2008
ACCA is pleased to have been involved in this initiative of the Better Regulation Executive and have already greatly contributed to the creation of this draft code of practice. So, perhaps unsurprisingly, many of our comments are generally positive. However, we do have specific concerns regarding how effective this code of practice will be in delivering improved regulatory guidance in practice.
Good guidance is crucial to good regulation and too often this fact has been ignored by regulators. Regulations seek to change behaviour amongst a specified population, and a successful regulation is one that delivers the desired behavioural change with a high rate of compliance and a good level of satisfaction amongst those regulated. However, if regulators fail to set out clearly and unambiguously what they expect of those they regulate, then the desired behaviour change will not happen, levels of non-compliance will be higher and unnecessary money will be spent punishing those who fail to comply. Poor guidance also has a broader economic impact; it increases the cost of compliance by compelling individuals to seek additional private sector guidance, or spend more management time understanding the regulation.
When producing the draft code of practice there was much debate about the conflict between producing a metrics led approach or principles led approach. The code has adopted a more principles based approach with only one or two of the rules containing a metric that can clearly be measured; the twelve week issue deadline and guidance review date. By adopting the principles based approach departments are freed to be more innovative in the production of their guidance and are able to adapt to changing technologies and the changing needs of those they regulate. However, it also provides the less diligent regulators with little oversight to improve the production of guidance. ACCA is concerned that this lack of metrics will lead to a code that is adhered to by many regulators but flouted by the less diligent ones.
The consultation document also makes little mention of any sanctions or action that may arise from a regulator's failure to follow the code of practice. Whilst legally the position of any code of practice is often opaque, it is usual that a code links to some form of quality monitoring system. This quality monitoring system, by definition, should include some form of sanction or action on those that do not adhere to it but we do not believe that this should extend as far as giving legal rights to dispute the quality of the contents through the courts. However, a transparent system of quality monitoring is needed to ensure the success of the code.
ACCA would recommend that a review function is carried out by either the Better Regulation Executive (BRE) advised by an independent panel of experts or the National Audit Office (NAO). Organisations and individuals would be able to submit guidance that they do not believe fulfils the code of practice for review and judgement. The chosen organisation would then rule on whether the guidance meets the code of practice and publish their findings. Departments or regulators would be expected to redraft any guidance that fails to meet the code within a defined timetable.
We believe the best sanctions would be to ‘name and shame' the regulators failing to meet the code. Judgements should be clearly publicised on the internet and to the media. Regulators that fail repeatedly to produce guidance of a requisite standard would be expected to take remedial action and review all their existing guidance. We believe that this simple and transparent system of review would lead to an overall improvement in the quality of guidance produced by regulators ensuring that the principles based approach is a success.
It is important that departments and regulators are provided with appropriate support so they are able to produce guidance that is code compliant. In general, we expect departments and regulators to introduce systems that will enable them to produce code compliant guidance independently of other bodies. However, we think that it would be beneficial for the Better Regulation Executive (BRE) to act as a support and advisory body for regulators; helping to spread best practice amongst regulators, encourage greater co-operation between regulators and drive further improvements in guidance.
QUESTION 1: Should Golden Rule 1 be included in the Code of Practice in this form?
QUESTION 2: If not, what alternative would you like to see?
Ensuring that the drafters of guidance have a clear understanding of their audience is critical to the success of that guidance; indeed it is critical to the success of all writing. So it is correct that this rule remains in the code of practice and is the first ‘golden rule.' A failure to understand the audience would undermine the ability of the guidance to meet the requirements of all the other ‘golden rules.'
Understanding the needs of your audience can be difficult, particularly if drafters of guidance have little experience of working with those that their department regulates. Regulators should be encouraged to work more closely with those they regulate in order to understand their needs and issues. In a number of instances it may be that a regulation has a number of distinct audiences and when this occurs regulators should consider issuing different sets of guidance.
QUESTION 3: Should Golden Rule 2 be included in the Code of Practice in this form?
QUESTION 4: If not, what alternative would you like to see?
Testing guidance on the likely audience is a key part of any quality control procedures and regulators should as a matter of course consult with their audience where possible and their representative groups in other circumstances. This would ensure that the community can understand the guidance and comply with the regulation. Therefore it is important to include this second golden rule. We would encourage regulators to exercise caution if they only speak to representative groups; as it is likely that the average staff member of a consumer group will be more au-fait with the concepts being proposed than the average consumer.
In general we would encourage regulators to set up user groups of their main regulated community. For some communities, such as the small business community, it may be hard to gather appropriate representatives together. However, if regulators are prepared to be innovative in their approach, they have every chance of being successful in reaching hard to get communities. Regulators should consider holding such groups outside of office hours, rewarding participants, partnering with appropriate organisations or even offering specific events, such as training seminars, that would be of interest to the specific community.
QUESTION 5: Should Golden Rule 3 be included in the Code of Practice in this form?
QUESTION 6: If not, what alternative would you like to see?
Regulators have too often produced guidance that is based solely on the relevant Act of Parliament to the exclusion of all issues which may be pertinent to the regulatory area. This is particularly troublesome for smaller businesses whose experience of regulation is likely to occur as a result of events, for example one of their members of staff becoming pregnant or the act of hiring a member of staff. Each of these events requires the application of different regulations and indeed regulators.
Better co-operation between regulators should enable the production of guidance that points out the key regulations that the regulated entity must comply with. In the example of pregnancy an admirable initiative has been undertaken by the Government whereby when a doctor confirms that a patient is pregnant they provide the patient with a form detailing all their maternity rights together with a form for the employer detailing what the employer must do to comply with the law.
The Better Regulation Executive should champion greater co-operation; supporting and encouraging regulators to work together to produce guidance that is organised around the user and not the regulator.
QUESTION 7: Should Golden Rule 4 be included in the Code of Practice in this form?
QUESTION 8: If not, what alternative would you like to see?
Clarity of guidance is one of the key aspects of guidance. A failure in clarity will lead to increased irritation amongst the regulated community, increased use of advisers and a greater likelihood of non-compliance. Therefore it must be the focus of regulators to ensure this clarity.
However clarity does not exist in a vacuum. It is of paramount importance to ensure regulators comply with the first and third golden rules of this code effectively to guarantee clarity. After all, guidance can only be clear if there is an understand of who the guidance is aimed for and what their views are of the initial drafts. Therefore guidance aimed at accountants may contain a relatively complex vocabulary and guidance for pensioners or sole traders should have a relatively simple vocabulary.
ACCA also encourages regulators to use innovative methods of producing guidance. The use of decision trees or web tools can greatly simplify guidance and help the regulated community to understand their responsibilities under regulation.
QUESTION 9: Should Golden Rule 5 be included in the Code of Practice in this form?
QUESTION 10: If not, what alternative would you like to see?
Golden rule five really strikes at the heart of good guidance. Guidance should enable, as far as is possible, compliance with the law and regulators should be encouraged to test whether their completed guidance does meet this standard.
QUESTION 11: Should Golden Rule 6 be included in the Code of Practice in this form?
QUESTION 12: If not, what alternative would you like to see?
ACCA research has found that regulatory change is the second most problematic regulatory issue for small businesses, after the quantity of regulation. 76% of SMEs said they were either somewhat or very concerned about staying up to date with new or changing regulatory requirements.
When guidance is not issued early it leads to confusion and concern amongst the regulated community as they become unsure as to which and how much of their business processes will be affected. Early issuance of clear guidance can help alleviate these fears. A limit of twelve weeks sets out a clear timetable as to when business owners and compliance personnel should expect to see details of any changes that will occur in the next three months.
This golden rule offers a clear metric by which the regulator can be judged on its performance and ACCA supports a rigorous enforcement of this golden rule. We further propose that regulators that do not have guidance ready for the required date should release a statement. This statement should detail the reasons for the delay in the production of guidance and include a date for release of the delayed guidance enabling businesses to plan effectively.
QUESTION 13: Should Golden Rule 7 be included in the Code of Practice in this form?
QUESTION 14: If not, what alternative would you like to see?
The National Audit Office, in its evaluation of the administrative burdens reduction programme, found that some of the most burdensome administrative activities for SMEs were related to the sourcing of information about which regulations applied to their business and how to comply with those regulations. Therefore it is important that regulators clearly understand the needs of their audience and use a delivery channel that is appropriate to their needs.
SMEs revealed to the NAO that greater delivery of information through the internet and the use of online tools was the least important measure for reducing the burdens on their business. ACCA, therefore, encourages regulators to be as innovative as possible when seeking to deliver regulatory information to their audience. Examples such as the delivery of information about maternity rights through the Health Service show exactly what can be done. Indeed, ACCA's members and other professional accountants are the leading advisers of small businesses and are advising their clients on regulatory requirements and regulatory change on a daily basis. Regulators should be encouraged to use these information channels when appropriate and ACCA would be keen to support such initiatives.
QUESTION 15: Should Golden Rule 8 be included in the Code of Practice in this form?
QUESTION 16: If not, what alternative would you like to see?
ACCA believes that all regulatory guidance should be tested before release to ensure usability and reliability; it is perhaps inevitable that some guidance will not work as well as originally thought possible, therefore a review and amending process is necessary. Legal judgements and regulatory change may also render a piece of guidance inaccurate or obsolete and require redrafting. It is therefore useful for users of the guidance to know exactly when the guidance was produced and when it will be reviewed.
QUESTION 17: Other than the Golden Rules outlined in this document, are there any other principles of good guidance that should be included in the Code of Practice?
ACCA believes that the eight golden rules neatly encapsulate all that is needed to improve the production of guidance by regulators. However, the success of this initiative is down to the level of compliance with the code by regulators. The current lack of any clear sanctions and a review process for compliance with the code is worrying. We would therefore encourage the BRE to set out a transparent review process and an appropriate sanctions policy for the code.