Why regulators need to get back on the beat and focus on relational regulation

COVID-19 has exacerbated a damaging trend away from in-person regulation, and regulators should get back on the street and focus on building relationships, say Professors Valerie Braithwaite and John Braithwaite.

John and Valerie Braithwaite are Emeritus Professors and founders of the Australian National University’s (ANU) RegNet (The Regulatory Institutions Network), Valerie Braithwaite is an interdisciplinary social scientist with a background in psychology and John has a background in sociology.

The pair will be presenters at the Australia and New Zealand School of Government (ANZSOG) auspiced National Regulators Community of Practice’s 2023 Conference in Melbourne on 21-22 September 2023. The conference theme is Regulatory hindsight, foresight and insight and it will feature keynote addresses from Harvard Professor Malcolm Sparrow and investigative journalist Adele Ferguson.

The Braithwaites spoke to ANZSOG about the challenges facing regulators, what went right and wrong during COVID, and the session that they will be presenting on Regulating Behind Closed Doors at the September conference.

Valerie said that it was too soon to tell the full impact of COVID-19 and the resulting changes in the work of regulators.

“We’ve had massive disruptions and people have adjusted and adapted. I think the challenge for regulators is to understand that adaptation and the different functionalities and dysfunctionalities that have been introduced. Regulators need to be getting out there fast and talking, in situ, to the people that they are regulating,” she said.

“One of the big things is that there is not as much conversation between regulators and regulated parties as before – which is an issue because while conversation can make you do bad stuff, it can also prevent you from making mistakes.”

She said that regulators stopping in-person inspections during COVID exacerbated an ongoing shift towards more desk-based, data-focused regulation that was reducing the effectiveness of regulators.

“Data is incredibly important but it is not going to tell you what is going on fully, particularly in the social care areas. If you are talking about regulating an institution with the intention of preventing harm, you have to go in and see what is happening,” she said.

John said that Australian regulators including the police had, by and large, done well during COVID-19 when compared internationally, but that there were some issues that needed addressing.

“One of the big failures was that 80 per cent of deaths in the first two waves were in aged care homes. The only other country near that proportion was Canada. We had a minority of aged care facilities that simply did not follow their infection control plans, or did not have an infection control plan, something which they were required to do under the regulations.”

He said that as well as health inspections, environmental inspections had been compromised by COVID which had meant high risk activities had been allowed to continue with little oversight.

“Again this is a longer-term trend away from street-level inspectors actually being on the street and towards desk audits where you submit your output data and someone at a desk looks at it, and sees if it is worth investigating.

“But effective regulation needs to be relational. Inspectors going out to sites means that things can be fixed quickly or immediately, and worse outcomes can be prevented. For example, the most important thing that police can do is to be on the beat. By having them go to hotspots the crime rate goes down, and it stays down in surrounding areas.

“It also supports whistleblowers. We know whistleblowing in general does not work well, and it takes a huge toll on the whistleblowers themselves, but one way it does work is when whistleblowers within organisations report things to the appropriate regulator on the beat so they find it themselves. That is far more likely to happen if they have a relationship with them.”

The value of understanding psychology

Valerie said that relational regulation was also important for the psychology of both regulators and regulated entities.

“Through relational regulation, things can be fixed up without threatening people psychologically – they can be shown or suggest a pathway to compliance that they can take immediately. Too much threat means that people play games or they disengage. As soon as you get into the world of threatening letters being written from head office, without a chance to discuss the issue and with a risk of losing one’s job or livelihood, those being regulated can feel the pressure and protect themselves by cheating and covering up rather than fixing things up. Threat from regulators, without opportunity to talk it through, brings out the emotions of anxiety, shame and denial. These emotions may not be a motivator for compliance.”

She said that decades of debate in the social sciences had shown that there needed to be a mix of quantitative and qualitative approaches if problems were to be understood, but that the emphasis on data and AI in regulation risks sidelining human-centred approaches.

“Big data has already changed regulation. It has changed it so that regulators only know what is in the data, so that whole world beyond the data is invisible to them. Data is important and they have to have the capacity to be good analysts, and the data infrastructure to be able to do that. But you also need to have people who know how to engage with people and to persuade them, and how to educate and to read people, which you don’t learn from sitting there looking at datasets.

“Robodebt saw all of that happen with absolutely awful consequences. At one level you can say the legal system worked in the end because there was accountability, but that can never compensate for the distress and hardship that affected not only those receiving benefits but also their families.”

John said that embedding regulators within workplaces – as had happened in Korean banks after the Asian financial crisis in 1998, and in American coal mines with high rates of accidents in the 1970s – had been shown to have positive results.

“There is always a risk that they might get captured, but there are ways to deal with that and the benefits in terms of understanding the culture and opportunities for prevention are important.”

He said that an emphasis on detection and prevention of rule-breaking is more important than focusing on sanctions and punishments, though both are important.

“The emphasis in the regulatory literature in Europe and the USA has always been on getting the sanctions right, whereas what’s more important on this view is getting detection better, because the certainty of detection is a better predictor of compliance than is the severity of sanctions. If we detect we can also deliver outcomes through warnings.

When asked about the biggest challenges facing regulators, John nominated the lack of satisfactory cooperation and collaboration between different regulatory agencies that were dealing with the same targets.

“Privacy concerns are being used as an excuse more than they should be. Look at the recent example of the ATO being unable to share information with the Police. In my view, you have a couple of hundred really bad criminal actors who move from financial scams, to tax evasion scams to toxic waste scams, and move from state to state. There needs to be a coordinated approach, and there is merit in the ‘Al Capone strategy’ – charging major criminals under the statute to which they are most vulnerable when it is difficult to nab them on their most serious crimes.”

Valerie agreed and added that another challenge facing regulators was being able to do their jobs effectively despite a lack of political support.

“At the moment many of them lack courage to do the job because we’ve had a couple of decades of them not being backed in by the political system. When something goes wrong thay become the scapegoat, but they are not resourced and their judgment is not backed. Regulators must be accountable but they need the backing of the government of the day to do their job.”

Full details of the 2023 NRCoP Conference including how to register are available here. Registration numbers are strictly limited so we encourage you to register as early as possible.

Other confirmed speakers include former Victorian Police Commissioner Christine Nixon, former ACCC head Graeme Samuel AC, Registrar of the Office of the Registrar of Aboriginal and Torres Strait Islander Corporations, Tricia Stroud, ASIC Commissioner Sarah Court,  Commissioner for Aboriginal Children and Young People Victoria, Meena Singh,  Dr Grant Pink, Professor Veronica Taylor. For the full program visit the conference webpage.

Topics to be covered include regulatory tools and levers, regulatory failure, using ‘near misses’ to improve regulatory practice, the role of investigative journalism, and working with First Nations communities.