NRCoP Conference 2023: What causes regulatory failures and why is it vital to learn from near misses?

Regulatory failures have shattered the lives of consumers and resulted in huge compensation payments for governments trying to address them. They are often complex, with multiple causes and expose regulatory regimes or practices that are not fit-for-purpose.

How can regulators learn from both these failures and the near misses that can provide insights into how a disaster is likely to occur?

These issues were discussed by panels at the ANZSOG-auspiced National Regulator Community of Practice (NRCoP) National Regulators Conference 2023: Regulatory hindsight, foresight and insight in Melbourne.

Natasha Mann, Commissioner, NSW Fair Trading said that regulatory failures led to some horrendous outcomes for consumers.

“So it is really incumbent on regulators to look carefully at what did go wrong, ask ‘why didn’t we spot it earlier?’ and ‘what could we have done differently?’, to make sure that we don’t make the same mistakes again.”

Ms Mann said there were two types of regulatory failure – catastrophic incidents or event, and ‘slow burns’ where something systemic is going wrong but there is no catastrophic event.

“That can be regulatory design failure – where you don’t have the right statutory basis or powers to deal with harms. For example, in Fair Trading we deal with real estate agents who are underquoting. We know it’s rife, but we have a $2200 maximum fine, and that is baked into to cost of doing business.”

“There can also be issues around resourcing. SafeWork NSW have 330 inspectors to cover the entire state, so they can’t be on every site and that failure is starting to manifest itself.”

Bronwyn Weir, Managing Director, Weir Legal and Consulting Pty Ltd spoke about issues in the construction industry that had led to consumers being burdened with huge expenses and little prospect of compensation – such as the Mascot Towers development in Sydney, and issues around flammable cladding in NSW, Victoria and Queensland.

“Regulatory failure often comes from inadequate laws, but often from inadequate implementation of those laws, and that comes down to ineffective regulatory practice,” she said.

“There can also be a failure to act on knowledge, because acknowledging a problem means acknowledging the legacy that is building around that problem – and that can be incredibly daunting.”

“If you don’t highlight the problems, you don’t have an authorising environment for change, but no one wants to highlight problems because that gets the issue in the news and puts the minister offside.”

“With regard to the cladding issue, there is no doubt the regulatory schemes had shortcomings and didn’t match the environment that was creating these developments. But there was also almost no proactiveness looking for issues on sites or trying to get in front of problems – and even five years on there’s not much of that happening.”

Ms Mann said that when it came to serious harms – such as the looming explosion in cases of silicosis among workers who cut stone benchtops – if regulatory interventions could not enforce compliance, the only alternatives were total or partial bans.

“Regulators are part of a broader system that involves legislation, policy changes and other trade-offs.”

What can we learn from near misses?

For regulators focused on safety, learning from ‘near misses’ and encouraging regulated parties to report them is a crucial part of avoiding failure.

Jodi Goodall, Head of Organisational Reliability, Brady Heywood, said that regulators looking to prevent major disasters needed to set up systems that allowed them to learn from near misses.

“Before every major disaster or business crisis there are a series of ‘near misses’ that happen. The control failures you see in near misses are the same control failures you see in big events, so learning from our near misses is very important.”

“When near misses happen it is important to look past individuals and focus on the system failures, but you can only do that if organisations are open with you. You can choose to discipline the organisation but if they then don’t share with you, you are risk-blind and you are not getting the warning signs of failure, so every disaster will come out of the blue.

“It’s a delicate balance but sometimes you’ve got to let it go and not punish.”

“You need to step into their shoes and see what is going to make the people you regulate tell you what you need to know and that’s where third parties come into it as well. The petroleum and gas industry have a group called Safer Together. It’s an industry body but they are focused on safety and things they can learn. Every participating body sends their incidents into ST which then anonymizes the incidents, and then presents them back. They talk about what could have happened and then what they learnt.”

Jane Eldridge, National Manager Notifications at the Australian Health Practitioner Regulation Agency (AHPRA) works in a very different field but said that, as health regulator, mandatory notifications were a very small part of their work, and that the focus was on strengthening practice and working with organisations.

She said that AHPRA had the flexibility to act on problem areas, and that recent concerns about rogue cosmetic surgeons had seen them set up a hotline – which had resulted in 12 practitioners no longer practicing as a result of serious complaints – and changes that restricted the use of the title ‘surgeon’ to protect consumers.

Dr Jonathan Aleck Head of Legal, International and Regulatory Affairs at the Civil Aviation Safety Authority (CASA) said that the aviation industry was good at reporting issues to CASA.

“If an operator lets us know they are doing something to address a near miss to ensure it doesn’t happen again, then we let them get on with it. I won’t call it self-regulation but there is that recognition that an org itself is in the best position to deal with those issues,” he said.

“We get a spate of near miss reports from the public in the wake of an accident, which is sad because it comes in the wake of an event not beforehand.”

“The effort we are doing on data is enormous. Our analysts provide executive management with a monthly summary of what they’ve seen. They look at areas that we know are problematic, but also identify areas that haven’t been previously seen as problematic. If we identify a trend we inform industry bodies, who advise their members and take steps to mitigate them.”