How to eat an elephant – front line strategies for effective regulatory enforcement 

Finding the right balance across four distinct stages of regulation  

Regulators can be most effective if they are able to successfully balance four key activities – prevention, detection, investigation, and response. Mr Curtis says delivering on all of the four responsibilities of regulation in tandem and with the right amount of emphasis on each is an ongoing challenge.  

“When regulators are determining which of the four areas they place more effort and resources, there is no one size fits all approach. The optimal weighting will always differ depending on the problem the regulator is trying to solve and also the importance of each continues to shift,’’ says Mr Curtis. 

Mr Norrie and Mr Curtis say each of the four stages of regulation face their own distinct challenges. 

“When we look at the best ways to address prevention, if regulations are complex or new, an education campaign might be the best strategy to achieve increased awareness and knowledge about compliance,” says Mr Norrie.  

“Additionally, when we turn our attention to detection, when combatting hidden non-compliance such as fraud, a relative emphasis on actively looking might be needed, knowing that only a minority of cases will come to light through reporting. Once this is known, other strategies to improve compliance, such as prosecution, come into play. Investigations and responses can be expensive and resource-intensive but also necessary and effective. So, agencies need to cover all four areas – the question is where to put the effort.”

Integrating with other regulators and becoming problem-centric will prevent oversights 

One thing is clear. Regulatory failures like those that sparked the Banking Royal Commission or the Aged Care Royal Commission, can have disastrous consequences for the industry being regulated, the public these industries are meant to serve, the regulators themselves and, in some cases, broader government. 

Mr Norrie says one of the issues surfaced by recent royal commissions was that multiple regulators had different responsibilities for enforcing various operational aspects of the same entities.  This sharing of responsibilities can result in gaps in the handover junctures and also makes it harder to ascertain whether each of the four stages are receiving the optimal emphasis. 

Mr Norrie and Mr Curtis support the notion of Professor Malcolm Sparrow’s classic regulatory text The Character of Harms, which advocated a “problem centric’’ approach. This states that the types and characteristics of risk to be prevented dictates different approaches.  For example, pollution detected in a river could originate from multiple sources (such as agricultural run-off from farms in the river catchment) or a single major industrial facility. Their different characteristics make for very different regulatory responses in terms of prevention, detection, investigation and response. 

“If regulators assess the problem in terms of an overall cycle it gives them the ability to correctly target where to put more effort and how to adjust it over time. However, it can be a challenge for busy regulators at the coal face to find time to step back and examine the overall picture, says Mr Curtis. 

Understanding key motivators of a regulator’s domain group will drive better outcomes 

Mr Norrie says the landscape is made more complex as regulators take different approaches to meet their individual objectives. For example, a water regulator that recognises their license holders are more focussed on their own business objectives as opposed to worrying about water licence compliance might institute an education and assistance program to improve compliance using business outcomes as a driver for changed behaviours. 

Other regulators such as the Australian Taxation Office (ATO) or Australian Securities and Investments Commission (ASIC) might concentrate their efforts more heavily on investigation and response to achieve compliance. The ATO launches periodic regulatory campaigns targeted at communities such as small business or landlords and then moves on to another group to enforce compliance. ASIC pursues legal prosecutions of companies as a high-profile public deterrent to non-compliance. 

Mr Norrie says the size of the task regulators face challenges them to broaden their thinking outside business-as-usual norms. 

Mr Norrie advocates forming project teams of specialists across all areas — prevention, detection, investigation, and response — to brainstorm how best to achieve the regulatory outcome that is being sought. 

“If the regulator is not achieving their desired outcomes, they should assess each of these four stages, ask questions to determine where their efforts aren’t hitting the mark and pivot their strategy and operations accordingly to fulfil their purpose. The real value will be realised when they are able to do this within budget and remain integrated with complementary departments for seamless delivery,’’ concluded Mr Norrie.