Presentation from the launch of the publication 'Being an Independent Regulator' by Faisal Naru & Filippo Cavassini.

1. PROTECTING FROM
UNDUE INFLUENCE
Safeguarding regulatory integrity for better outcomes
Faisal Naru & Filippo Cavassini,
Regulatory Policy Division, Public Governance and Territorial
Development
Public Policy Forum, Ottawa, 19th July 2016

2. 1. Being independent
2. What does it really mean?
3. What to do next?
Agenda

3. Body of work of the NER

4. Being independent

5. Assessing some formal features—the
OECD Product Market Regulation (PMR)
• Instruction from the government on long-term strategy, work
programme, individual cases, appeals
• Which body can overturn the decisions of the regulator
• Independence stated in law
Instruction
• Staff recruitment
• Appointment , term of office and dismissal of agency head/board
• Pre- and post-appointment employment of the agency head/board
• Positions in government/industry while in office
Staff
• Source of funding (dominant or multiple)Budget

6. Formal independence varies across
countries and sectors
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
DEU
ITA
TUR
KOR
GRC
HUN
SVK
IRL
CAN
ESP
CZE
FRA
ISR
CHE
DNK
POL
EST
LUX
PRT
JPN
SVN
NZL
AUT
NLD
FIN
BEL
SWE
MEX
CHL
GBR
ISL
AUS
NOR
Elecricity Gas Telecom Rail transport Airports Ports
Index scale 0 to 6 from most to least independent
Source: OECD Product Market Regulation Database, http://www.oecd.org/economy/growth/indicatorsofproductmarketregulationhomepage.htm

7. 0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
ESP
FRA
GBR
PRT
NZL
AUS
MEX
CAN
IRL
ITA
NLD
GRC
POL
DEU
JPN
HUN
SVK
AUT
SVN
BEL
SWE
FIN
CHE
NOR
LUX
CHL
DNK
ISL
KOR
CZE
TUR
ISR
EST
Elecricity Gas Telecom Rail transport Airports Ports
Formal independence closely linked to
accountability
Index scale 0 to 6 from most to least accountable
Source: OECD Product Market Regulation Database, http://www.oecd.org/economy/growth/indicatorsofproductmarketregulationhomepage.htm

8. 0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
GBR
ITA
POL
NLD
KOR
SVK
ISL
GRC
IRL
FIN
HUN
PRT
CAN
MEX
FRA
TUR
AUT
LUX
CZE
JPN
SWE
ISR
NZL
DEU
BEL
AUS
EST
NOR
CHE
DNK
ESP
CHL
SVN
Elecricity Gas Telecom Rail transport Airports Ports
Formal independence tends to be inversely
related to the regulators’ powers
Index scale 0 to 6 from most to least scope of action
Source: OECD Product Market Regulation Database, http://www.oecd.org/economy/growth/indicatorsofproductmarketregulationhomepage.htm

9. “The questions you always wanted to
ask but never could” Survey 2015

10. Who answered the Survey?
48 Regulators
26 Countries
Diverse
sectoral and
institutional
mix

11. Does the government issue formal statements on its
expectations of the conduct of the regulator's activities?
How ministries make their ideas clear:
statement of expectations
Source: OECD (2016), Being an Independent Regulator, OECD Publishing, Paris,
http://www.oecd.org/gov/regulatory-policy/being-an-independent-regulator-9789264255401-en.htm

12. How does the government indicate its preferred position
regarding regulatory decisions?
How ministries make their ideas clear:
other formal & less formal means
Note: No information on the nominating authority for 13 regulators; for two regulators the nomination
of some board members is made by the executive and some by the legislature
Source: OECD (2016), Being an Independent Regulator, OECD Publishing, Paris,
http://www.oecd.org/gov/regulatory-policy/being-an-independent-regulator-9789264255401-en.htm

13. Note: No information on the nominating authority for 13 regulators; for two regulators the
nomination of some board members is made by the executive and some by the legislature
Choosing a director or board: who
nominates?
Source: OECD (2016), Being an Independent Regulator, OECD Publishing, Paris,
http://www.oecd.org/gov/regulatory-policy/being-an-independent-regulator-9789264255401-en.htm

14. Choosing a director or board: who
appoints?
Source: OECD (2016), Being an Independent Regulator, OECD Publishing, Paris,
http://www.oecd.org/gov/regulatory-policy/being-an-independent-regulator-9789264255401-en.htm

15. • Relying on formal processes to collect
inputs
– Consultation papers
– On-line consultations
– Public hearings
• Feedback on consultation inputs
• Permanent bodies to facilitate regular
exchanges with industry (5 regulators)
Engaging with stakeholders

16. Managing the staff ecosystem:
remuneration
Source: OECD (2016), Being an Independent Regulator, OECD Publishing, Paris,
http://www.oecd.org/gov/regulatory-policy/being-an-independent-regulator-9789264255401-en.htm

17. Managing the staff ecosystem: conflict of
interest
Source: OECD (2016), Being an Independent Regulator, OECD Publishing, Paris,
http://www.oecd.org/gov/regulatory-policy/being-an-independent-regulator-9789264255401-en.htm
Note: Out of 29 regulators who reported having codes of ethics

18. Funding: who sets the regulatory fee?
Source: OECD (2016), Being an Independent Regulator, OECD Publishing, Paris,
http://www.oecd.org/gov/regulatory-policy/being-an-independent-regulator-9789264255401-en.htm
Note: Out of 36 regulators funded through fees or a mix of general revenues and fees. No
information for 9 regulators.

19. Funding: timeline of appropriations
Note: Out of 24 regulators funded through general revenues or a mix of general revenues
and fees. No information for 6 regulators.
Source: OECD (2016), Being an Independent Regulator, OECD Publishing, Paris,
http://www.oecd.org/gov/regulatory-policy/being-an-independent-regulator-9789264255401-en.htm

20. What does this all mean?

21. Culture of Independence: proactive referees
Regulatory integrity
Confidence that regulatory
decisions are made on an
objective, impartial, and
consistent basis, without
conflict of interest, bias or
improper influence

22. Influence on Regulators
Citizens Government
Industry
Illegitimate Industry Lobby
Un-transparent Organised “Special Interest” Groups
Political agendas

23. • Identify when pressure points arise (in terms of internal and external governance);
• if there are countervailing/ exacerbating/compounding effects;
• due & undue influence may counterbalance to provide neutrality;
• different pressures might be positive or negative in different contexts/ sectors.
• Different timelines:
• recurrent cycles (budget appropriations, staff turnover);
• individual cycles (staff & board incentives & conflict of interest);
• some sector specific timelines;
• timelines for specific regulatory decisions and legal obligations.
• Dynamic aspect – progression over time (history matters), as culture develops:
• Progressively inception point may become irrelevant/ obsolete (will differ by
country and sector; or even segments or specific functions within sectors).
“Pinch Points” Analysis

24. Financial LeadershipStaff
Behaviour
Nomination of
Board/Head
Inception
point
Types of Independence
EVENTS
Cultureof(formalandinformal)
independence
“Pinch points” in the life of a regulator for undue influence
Appointment of
Board/Head
End of term of
Board/Head
Budget
Appropriation
Budget Decision
Budget
Assessment/
Negotiation
Nomination of
New Board/Head
Budget
Appropriation
Appointment of New
Board/Head
Elections
Change of
Minister
Regulatory Decision Appeal
Government
Budget
Decision by court
upholding decision
Inspection/
Investigation
Inspection/
Investigation
Political

25. Financial LeadershipStaff
Behaviour
Nomination of
Board/Head
Inception
point
Types of Independence
EVENTS
Cultureof(formalandinformal)
independence
“Pinch points” in the life of a regulator for undue influence
Appointment of
Board/Head
End of term of
Board/Head
Budget
Appropriation
Budget Decision
Budget
Assessment/
Negotiation
Nomination of
New Board/Head
Budget
Appropriation
Appointment of New
Board/Head
Elections
Change of
Minister
Regulatory Decision Appeal
Government
Budget
Decision by court
upholding decision
Inspection/
Investigation
Inspection/
Investigation
Political

26. What’s next
Who cares about Independence
– where is my train?

27. Paradigm shift: Focus on performance
Industry
(operators and service providers
in the market)
Government
(including regional/ EU/
international directives and
influence)
Regulator
(referee for existing rules, &
forward-looking for future rules
of the game)
Effective functioning of the regulated market/sector
Sweet
Spot
Citizens/
Consumers

28. Industry
(operators and service providers
in the market)
Government
(including regional/ EU/
international directives and
influence)
Regulator
(referee for existing rules, &
forward-looking for future rules
of the game)
• Lobbying
• Voting
• Media
• Feedback / appeals
• Trade unions
• Public consultation
• Issue guidelines/ stds
• Set / approve tariffs
• Issue licenses
• Inspections
• Informal consultation
• Directions
• Auditing performance
• Seek expertise
• State expectations
• Sets scope of action of regulator
• Final approval of decisions/ appeals
• Informal influence / media
• Policy & Strategy
(Market structure)
• Consultation
(Formal &
Informal)
• Information for
regulatory
decisions (e.g.
tariffs)
o Compliance
o Cost estimates
o Performance
• Feedback
(consultations)
• Complaints/
Appeals
• Feedback
o Implementation
o Direction (strategic)
• Performance
• Lobbying
• Capacity building
Citizens
Consumers
(voters)
Interactions and relationships between actors in the regulated
market/sector
Undue/ unjustified
demands from
customers placed on
regulators (mission
creep) if role &
responsibilities not
well defined
External
governance
Internal
governance
- Financial
-Leadership
- Human
Capability

29. Budget
Revenue sources
Budget Decision
Who decides? How much?
How is the decision made?
For how long?
Budget process &
discussion
Source of revenue? For how
long? Who checks? Channel
to reach regulator?
Autonomy in spending
Classification of
expenditures
Rules of public spending,
procurement, KPIs, Auditing
obligations
Constraints Spending caps, Political
decision/discretion
Budget re-allocation,
strategic planning &
assessment
Cost/Spend assessment
Criteria for assessment (were
funds well spent? Were
obligations met? Are future
demands adequate?)
Internal evaluation
(by regulator)
Who decides? (political motives;
access to performance info,
regulator budget proposal ,cost
recovery mechanisms./
calculation)
External evaluation
Independent Body? Political
assessment? Perceptions –
media, industry, citizens
Nurturing a culture of
Financial Independence

30. Nurturing a culture of independence of
Leadership
Nomination
•Transparency of
nomination
•Competence
•Impartiality
•Credibility
with
stakeholders/
ability to work
•Composition of
board
Appointment
•Terms &
conditions
•Transparency of
appointment
•Timing/
staggering
Functioning/ in
post
•Conflict of
interest
register/
procedures
•Decision-
making
procedures &
publication
•Checks and
balances in
board
composition
Exit / leaving
post
•Preventing
decision biases
before exiting
(cooling-off
periods –
remunerated?)
•Preventing
commercially
sensitive
information
being accessed
•Disclosure of
offers
HEAD/
BOARD
(dynamic)
Nomination generally more political; but nature
of appointment process can exert influences
upstream
Protection of
professionalism of
board and head
Leadership: attitude to risk, safeguarding ability of staff to act independently without fear of retribution
Who nominates?
How?
Candidate
selection criteria?
Who is consulted/
has a say?
Who appoints?
How much say does
agency have?
How many
candidates to
choose from?
Prevent greater
influence from
industry or gvt as
near the end of each
individual’s term

31. Nurturing a culture of independence of
Staff Behaviour
STAFF
(stay – less
impact on
timeline/
variability,
but attitude
to risk/
culture may
be more
important
overall)
Recruitment
•Competence
•Ethics (sense of
public duty,
“regulatory
stewardship”)
Tenure
•Reward (pay or
other e.g.
recognition)
•Opportunity for
development
(accreditation)
•Strategic
objectives &
performance
management
(PAFER) –
embed culture of
independence
Retention
•Salary scale and
progression
(public vs private
sector scales)
•Enablement
(freedom from
retribution,
capacity to act
independently)
•Career path
(professional and
personal growth,
mentoring or
coaching,
training, etc)
Exit
•Cooling of
periods for senior
staff
•Allowing for
expertise
exchanges
between industry,
government and
regulators
without putting
in danger
integrity and
objectivity (post-
and pre-
employment
requirements)
Personal
incentives
Organisation
al incentives/
checks &
balances
Management: enabling culture of independence in every day activities with appropriate
accountability
Prevent greater
influence from
industry or gvt as
near the end of each
individual’s term
Protection of
professionalism of
staff

32. Interactions and
relationships
between actors
in the regulated
market/sector
• Managing the
relationship with
the executive and
parliament
• Interacting with the
media
• Consulting with
industry and
consumers
• Managing lobbying
and lobbyists
Towards Guidance for Protecting from
Undue Influence
Nurturing a
culture of
financial
independence
• Discussing and
appropriating the
budget
• Managing the
budget
• Assessing and
planning ahead
Nurturing a
culture of
independence
of leadership
• Nominating and
appointing the
Board/Head
• Protecting the
professionalism of
the Board/Head
when in post and
at exit
Nurturing a
culture of
independence
of staff
behaviour
• Attracting
capable and
motivated staff
• Protecting the
professionalism
of staff when in
post and at exit

33. • How? Provide your views on what makes
a difference in protecting regulators from
undue influence to Faisal.Naru@oecd.org
& Filippo.Cavassini@oecd.org
• When? By 15 September 2016
• Why? Preliminary principles will be
discussed by the Network of Economic
Regulators in November 2016
Can you help us?

34. • Regulators are not above and beyond the system
 Overlaps with government inevitable and desirable if the
regulator has some discretion/transparency/capability
 Roles and responsibilities of government, operators and
regulators need to be clear  accountability for results
• Formal and practical independence go hands in hands
 Formal safeguards help clarify respective roles and assign
responsibilities
 Culture of independence is what ultimately gives
credibility to the regulator and the regulatory environment
• Perception of not being too close to industry or the government
(impartial and objective referee)
• How the regulator is led, funded and staffed determine the
capacity to act independently  critical “pinch points”
where greater opportunities for “undue” influence can/will arise
Conclusions

35. http://www.oecd.org/gov/regulatory-policy/independence-of-
regulators.htm
http://www.oecd.org/governance/regulatory-policy/ner.htm
Thank you! Merci !
Faisal Naru
Senior Economic Advisor
Faisal.Naru@oecd.org
Filippo Cavassini
Policy Analyst
Filippo.Cavassini@oecd.org