Regulation in Practice Why is it so hard? Why is it so hard? And - - PowerPoint PPT Presentation

Regulation in Practice Why is it so hard? Why is it so hard? And what can we do to improve?

Hanzo van Beusekom Hanzo van Beusekom hanzo@clearconduct.nl Wellington, March 2nd 2014

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St P t ‘ t i ’ i NL (108 ) A ki / Mt C k (3724 )

• St. Peters ‘mountain’ in NL (108 m.)

Aoraki / Mt. Cook (3724 m.)

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What do regulators aim for? aim for?

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Why do regulators fail?

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Hypothesis A Hypothesis A Regulators are: Regulators are:

• Lazy
• Incompetent
• Incompetent
• Corrupt

(or a combination)

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Hypothesis B Hypothesis B Disasters incidents & scandals are a Disasters, incidents & scandals are a normal outcome:

• Society has many built in conflicts
• Regulators have limited influence
• Regulators have limited influence
• Zero‐failure is a dangerous fiction

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Hypothesis C Hypothesis C Regulation in practice is Regulation in practice is difficult, it requires:

• managing trade‐offs
• wide range of skills
• wide range of skills
• practice and perseverance

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Did you see it? Did you understand? Harm Harm

Did you act upon it?

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p

Did you see it? Did you understand? % ? % ?

Did you act upon it?

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p

Context

Detection Detection Analysis Analysis Mitigation Mitigation

Outcome / Eff t Effect

Trade‐offs, choices and learning

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• What classes of risks are within scope?
• Is it clear what we value most as an organization?

C t t

Is it clear what we value most as an organization?

• What are the expectations of our stakeholders?
• What does success look like?

Context

• What is the nature of the harms we identify?
• What kind of information do we need?
• What are our biases and blind spots?

Detection

• What are our biases and blind spots?
• Have we formulated multiple hypotheses?

p yp

• Do we understand the dynamics / root causes / drivers?
• Do we have an estimate of the size and importance?

Analysis

• What is our strategy to deal with this risk?
• Are we addressing the root causes or drivers of the risk?

Detection Mitigation

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• Which tools do we use?

Quick example: hidden cost of banking Quick example: hidden cost of banking

C t t

• Dutch financial conduct of business regulator

k d f i l

Context

• We want to make sure costumers are treated fairly
• Banks should not profit from superior information position

Detection

• Any information to disclose hidden costs and fees
• Insiders, product information, complaints
• Bias: consumers are weak and need help
• Bias: consumers are weak and need help
• Segmentation by product, costumers, institution

Analysis

Seg e tat o by p oduct, costu e s, st tut o

• Saving products are big source of excess profit
• Regulatory race to the bottom, no feedback loop

Detection Mitigation

• Raise awareness among consumers
• Use pressure and turning point strategy

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• Strong on transparency, not too much enforcement

What can we do to improve regulation in practice? p

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Tell stories Tell stories Increase focus Increase focus I d t ti Improve detection E d l Expand toolset Practice & learn

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Difficult trade offs in clean air regulation Difficult trade‐offs in clean air regulation

Start‐up coffee roaster The neighborhood “God given right to earn a buck” “The public’s right to breathe clean air” Woodstove as the single Burn ban on cold winter day

Private Public

“We need to “We need to “The public’s “The public’s Woodstove as the single point of heat Burn ban on cold winter day to lower smog

Private Public

keep

• urselves

warm” keep

• urselves

warm” right to breathe clean air” right to breathe clean air”