The regulator’s dilemma – regulating in a sea of influence

This guest editorial was written for the ANZSOG/National Regulators Community of practice monthly newsletter, highlighting new additions to the Regulation Policy and Practice collection on APO. The RP&P collection brings together a range of practical resources from national, local and state/territory governments, regulatory agencies and external institutions conducting monitoring, inquiries and reviews. You can receive this newsletter by  joining the ANZSOG/National Regulators Community of Practice (membership is free) or subscribe to the newsletter directly.

By Commissioner Michael Riches, Independent Commissioner Against Corruption (ICAC) for the Northern Territory

Being a regulator is tough. Regulators must carefully navigate the need to positively engage with the sector they regulate while also ensuring standards are enforced. At the same time, regulators can face downward pressure from within government, particularly where regulatory efforts may be seen to stifle the advancement of governmental priorities.

Walking the tightrope

It is inevitable that regulators will wish to establish positive dialogue with members of the regulated industry. Such dialogue is important. In many cases, the regulator will have both education and enforcement functions. Positive engagement is a key element in the promotion of standards. It follows that regulatory staff must form positive professional relationships with industry members in order to maximise the effectiveness of education or prevention activities.

But great care must be taken in respect of engagement. As regulators, we must be alive to the risks that such engagement may influence, even sub consciously, our approach to regulatory enforcement.

The risk of grooming and capture is ever present within regulatory organisations. In simple terms, grooming refers to a course of behaviour aimed at ingratiating oneself to a person in a position of authority with a view to favourably influencing the decisions of that person. At its worst, grooming can result in capture, whereby a regulator may experience such a sense of obligation or loyalty to an industry member that regulatory decisions are compromised.

Identifying the existence of grooming can be difficult. Grooming behaviour can be subtle. Developing and sharing nicknames, engaging in conversations about the personal lives of a regulator, offerings of minor hospitality or small gifts may be seen as perfectly innocent, but may also signal an attempt to develop a relationship aimed at subtly influencing decisions. More open behaviours may include invitations to attend industry events at no cost, invitations to sit in industry boxes or tents at major events, taking part in social engagements with members of industry, and forming social relationships with industry members. These are all red flags and must be carefully scrutinised.

That is not to say that regulators should never participate in industry activities nor form professional relationships with industry members. As I have said, engagement is a necessary element of regulation. But we should always approach our duties understanding the risks. By way of example, before accepting an invitation to attend an industry event, the regulator might ask:

• Why have I been invited?
• In what capacity would I attend?
• What public interest outcomes would be advanced by my attendance?

Heads of regulatory agencies should also consider how to mitigate risks of improper influence on staff. That is particularly the case where staff are authorised to make regulatory decisions. Staff should be equipped to recognise the signs of influence and understand what to do if such behaviour occurs. Special attention should be paid where regulatory staff are constantly engaging with the same individuals, such as in regional locations or within highly specialised sectors.

Holding the regulatory line

Regulators may also face pressure from within government. The role of a regulator is to ensure standards are maintained and, where necessary, take positive action to enforce those standards. On occasion, the enforcement of standards may be perceived to stifle governmental activities. In such cases, regulators may experience pressure to adapt the manner in which they discharge their functions in order to avoid conflict with government.

Such pressure (whether direct or indirect) may be amplified where the regulator falls within the structure of a government department. While the regulator may have independence enshrined within statute, there may still be a reporting line to a chief executive. One can readily identify the potential for conflict where a chief executive may wish to advance a governmental policy focussed on the industry for which the regulator is responsible. Even more difficult is the circumstance where a regulator may be faced with the decision to take action against the department within which the regulator sits.

At its most extreme, there are occasions where a chief executive, who is responsible for advancing the policies of the government, is also the regulator. It is difficult to identify how such a conflict of duties could be reconciled.

Nevertheless, regulators must hold the regulatory line, even in the face of such influence. It is essential that a regulator has a very clear understanding of their role and the extent to which independence is enshrined in statute. Every opportunity should be taken to reinforce that independence. On occasion, uncomfortable and difficult conversations will be required.

Navigating these challenges, if and when they arise, is difficult. That is why peer support is essential. Engaging with other regulators to discuss challenges and consider solutions can be very effective. I have little doubt that the challenges being faced by one regulator will be similar to those experienced by many others.

Ultimately, attempts to improperly influence regulators in the discharge of their statutory responsibilities is a very serious matter. That is particularly the case where such improper influence appears to originate from within government. In such circumstances, consideration should be given to reporting that conduct to the appropriate anti-corruption or integrity agency.