LLB142 - Regulation of Business

Define Regulation

Too broad to define; definition varies depending on the specific sector ranging from law to physics.

What is the traditional definition of a regulation?

A government-backed rule backed by legal sanctions.

What is Freiberg’s broader definition of a regulation?

Government deliberately moulding individuals and organisations via various means including imposing social sanctions and monetary gains to achieve desirable outcomes.

Why is law considered a foundation of government regulation?

Gives them the authority to regulate.

What are some broader problems addressed by regulations?

Market failure, public safety, public trust

What does economic regulation work on?

Improving market efficiency, competition and consumer protection.

What does social regulation work on?

Protecting people, society and the environment.

Why is regulation considered paternalistic?

Governments make decisions about what behaviour is in the public interest, sometimes limiting freedom.

What does regulation principally depend on?

Public trust and acceptance

Distinguish between direct and indirect interventions in regulation

Direct intervention involves changing people’s behaviour whereas indirect behaviour involves changing the environment people are situated in.

Why did Australia develop a more interventionist regulatory system than countries such as the United States?

Australia started out as a penal colony which required more extensive government control and supervision to maintain order, liberty and advancement.

What are the three stages of Australian regulatory history identified by Freiberg?

1788-1900 represented the individual colonies coalescing into the Australian Federation and established regulatory frameworks and institutions; 1901-1970s represented the Federation expanding into Commonwealth regulation; and the 1970s-present represented the regulatory shift toward privatisation, competition policy, risk management and co-regulation rather direct government control.

What role did regulatory authorities play in colonial Australia?

Tasked with overseeing and managing nationwide affairs including regulating economic policies, administering laws and supervising public activities.

Why were regulatory frameworks important to Australia's development?

They provided legal foundations for various areas including markets, banking, transport, utilities and public infrastructure.

Why were boards, commissions and statutory authorities created?

As government responsibilities expanded, specialist boards and statutory authorities were established because they possessed expertise that ordinary government departments lacked.

Why did licensing become Australia's most important regulatory tool?

Licensing allowed governments to control who could participate in particular activities, impose conditions, protect consumers and public safety, manage natural resources and generate government revenue.

What is the difference between occupational licensing and professional licensing?

Occupational licensing is directly administered by the government to regulate trades and occupations for public protection whereas professional licensing typically involves co-regulation where professional boards regulate standards under government authority.

According to Freiberg, why is the term "deregulation" misleading?

Australia underwent a regulatory reconfiguration rather than deregulation as governments privatised some services but continued regulating through other means including consumer protection and independent agencies.

Why is harm considered a key justification for regulation?

Governments regulate to prevent or minimise harm; however, the concept of harm has evolved over time as new social, political and technological developments emerge e.g. AI misuse.

What is market failure, and why does it justify regulation?

Occurs when free markets do not properly allocate resources efficiently or produce socially desirable outcomes. Governments actively regulate to correct these failures by addressing relevant problems including monopolies and pollution.

What are externalities?

Externalities are costs or benefits that affect people who are not directly involved in an economic transaction.

• Negative externalities (e.g. pollution) impose costs on society.

• Positive externalities (e.g. vaccination) provide benefits beyond the individual.

Costs or benefits that affect people not directly involved in an economic transaction. Categorised into negative externalities (e.g. pollution) and positive externalities (e.g. vaccination).

What is information asymmetry, and how do governments address it?

Occurs when one party has more information than another, limiting informed decisions. Governments reduce information asymmetry through actions including mandatory disclosure and licensing.

How does modern regulation approach risk?

Focuses on managing rather than eliminating risk. This is executed via risk-based regulation where governments assess the likelihood and consequences of risks and allocate regulatory resources to relevant areas of impact.

Why is trust important in regulation?

Encourages voluntary compliance and supports efficient markets and institutions. Trust is built via regulation through public assurance of quality.

What is procedural fairness, and why does it matter?

Regulatory decisions are made openly, fairly and transparently. This includes incorporating consultation and enabling reviews and appeals.

Who are regulators according to Freiberg?

Organisations or individuals (including governments, boards and councils) responsible for influencing behaviour and achieving public policy objectives.

What is an Independent Regulatory Agency (IRA), and why are they established?

A statutory body that operates at arm’s length from government while remaining accountable to Parliament. Governments establish IRAs as they offer various assets including improving credibility and public trust.

Why is role clarity important for regulators?

It ensures that regulators, governments, regulated organisations and the public understand each regulator's objectives, powers and responsibilities.

What are the three main governance models for regulators?

The board model (where a governing body manages strategic direction while the CEO manages daily operations); the commission model (where multiple commissioners collectively make regulatory decisions; and the single-member regulator model (where a single regulator is responsible for overseeing major decisions and organisational leadership).

What is regulatory overlap, and what problems can it create?

Arises when multiple regulators or different levels of government regulate the same activity. This is further divided into vertical overlap (between Commonwealth, state and local governments) and horizontal overlap (between different agencies within the same level of government). Overlap can cause various setbacks including duplication and confusion.

First step to deciding whether to regulate

Identifying and defining the problem including the size of the problem and the associated costs of intervention.

Wicked problems

A problem that is fundamentally difficult to define specifically in terms of what the problem actually is, what causes it and what the optimal solution and approach should be e.g. poverty and climate change.

Regulatory responses to wicked problems

Responses need to be iterative, adaptive and collaborative.

Desired objectives

What policymakers want to achieve from government intervention. Objectives are not the same as means; there may be several means to achieve an objective.

Objects sections

States the purpose or objectives of an act in legislation. Helps establish why regulations exist and what they hope to achieve.

Parsimony

Regulators should utilise the least intervention necessary to achieve the desired outcome.

Precautionary Principle

A lack of a complete scientific certainty should not be used as a reason to postpone measures to prevent serious harm.

Preventive Regulation

Attempts to reduce the likelihood of harm before it occurs e.g. building standards.

Intermediaries

Individuals who can operate in between regulators and those being regulated e.g. lawyers.

Corporate crime responsibility - Agency theory

A corporation is responsible for the acts and mental states of its agents.

Corporate crime responsibility - Directing mind or identification theory

A corporation is liable for the actions of individuals who represent its directing mind and will.

Corporate crime responsibility - Organisational blameworthiness

A corporation may be responsible where its policies and procedures unreasonably failed to prevent criminal conduct.

Corporations

Corporations are major regulatory targets because much commercial activity is conducted through corporate structures.

Early Regulation Harm

Could potentially cause restricted innovation and technological development.

Late Regulation Harm

May cause serious or irreversible harm to occur.

Components of a good regulatory system

Possessing continuous improvement and building trust; being risk-based and data-driven; and collaboration and engagement.

Clarity of Roles

Regulators require clearly defined roles and responsibilities such as promotion of accountability and legitimacy.

Clarity of Outcomes

Regulatory interventions should have clearly defined and outlined objectives which should be based on the SMART framework (specific, measurable, achievable, realistic and time-driven).

Involvement of Stakeholders

Good regulation requires regulators to actively involve organisations and people who are affected or interested in regulation.

Consultation

Ranging from simply providing information to more active collaboration, involvement and decision-making. Effective consultation should be continuous, consistent, transparent, etc.

Co-design

Creates a more equal relationship, involving affected people directly in designing solutions.

Formal Consultation Requirements

In various circumstances, consultation is a legal requirement (as noted in s17 of the Legislation Act 2003 (Cth)).

Proportionality

Implies regulatory measures should be appropriately related to the problem they pertain to.

Regulatory Independence

Helps ensure that decisions involving regulatory interventions are based on relevant considerations rather than political influence.

Accountability

Means that regulators have an obligation to explain and justify their actions to others e.g. parliament.

Transparency

Involves making regulatory activities accessible and open to scrutiny e.g. enforcement policies and usage of AI.

Timeliness

Regulatory processes should be completed within a reasonable timeframe as unnecessary delays like in registration, complaints, etc can cause frustration, stress, etc.

Comprehensibility

Regulation must be understandable to the people required to comply with it.

Flexibility

Good regulation must balance consistency and predictability with the need to respond to changing circumstances.

Two core attributes of an excellent regulator

Integrity and empathetic engagement.

Red Tape (Unnecessary regulatory burdens)

Generally refers to regulatory requirements that are ineffective, unwarranted, unnecessary or inefficient. Common causes include excessive coverage, too-frequent reporting and time-consuming processes.

Sludge

Burdens faced by individuals when interacting with the government including complex forms and websites and excessive paperwork.

General economic costs of regulation

Includes a reduction in productivity; discouragement in investments; or restriction of innovation.

Efficiency Costs

Arise when regulation changes the way businesses and organisations operate in ways that reduce economic efficiency e.g. creating barriers to entry or distorting prices.

Compliance Costs

The direct costs of complying with regulatory requirements including completing paperwork and reporting to regulators.

Enforcement Costs

Costs imposed on the government by regulations including spending money on consultation and regulatory reviews.

Measuring the amount of regulation

Regulation should be assessed qualitatively and quantitatively and measurements should be account for the growth and complexity of the economy. Methods like RegData (counting key word like “required”) is considered outdated as a large number of laws does not inherently indicate a large regulatory burden.

Specialist bodies to improve regulatory quality

Examples include the Commonwealth Office of Impact Analysis and Queensland’s Office of Productivity and Red Tape Reduction.

Regulatory Impact Assessment (RIA)

The overall systematic process used by policymakers to critically examine the potential costs, benefits and unintended side effects of a proposed new rule.

Regulatory Impact Statement (RIS)

The actual document produced during the RIA process.

Zombie Regulation

Rules that remain on the books but have little or no practical effect.

One-in, One-out Policy

For every new regulatory instrument introduced, one or more existing instruments must be removed. A limitation associated with this process is the government making arbitrary removal decisions to meet numerical quotas rather than genuinely needing to remove unnecessary regulations.

Sunsetting

Involves automatically terminating regulations after a specified period unless they are reviewed and readministered. Potential limitations of this method including overworking staff and financial costs.

Practical Deregulation Approach

Simplify the actual processes through which people and businesses comply with regulation including reducing reporting frequency.

Sisyphus Paradox

Governments repeatedly attempting to reduce regulatory burdens but new problems continually generate pressure for additional regulation.

Regulatory Tool

A method, instrument or intervention used by government to influence behaviour or achieve a public policy objective.

Regulatee

The person, business, organisation or other entity whose behaviour is being regulated.

Compliance Cost

The cost incurred by government in creating, administering, monitoring and enforcing regulation.

Carrots

Regulatory approaches that encourage desired behaviour through rewards or incentives.

Sticks

Regulatory approaches that discourage behaviour through penalties, sanctions or coercion.

Subsidy

Financial assistance provided by government to encourage a particular activity or reduce its cost.

Transactional Regulation

Regulation that uses agreements or economic transactions between government and other parties to influence behaviour and achieve policy objectives.

Authorisation Regulation

Regulation that controls behaviour by requiring government permission before a person or organisation can undertake an activity.

Informational Regulation

Regulation that attempts to influence behaviour by providing, requiring or controlling access to information.

Behavioural Regulation

Regulation that uses knowledge about human behaviour and decision-making to influence choices.

Structural/design-based Regulation

Regulation that influences behaviour by changing the physical, technological or environmental conditions in which people make decisions.

Rule of law

The principle that government officials and citizens are governed by publicly accessible, clear and stable laws, and that no person is above the law.

Rules as Code (RaC)

The process of translating legal rules into a machine-consumable form that can be processed directly by computer systems.

Hard Law

Legally binding rules that can be enforced by the state through civil, criminal or administrative sanctions.

Soft Law

Rules, standards or guidance that influence behaviour without necessarily being directly enforceable through explicit state sanctions.

Private Standard

A standard developed by a private or non-government organisation, often involving industry experts and stakeholders.

Incorporation by Reference

The process of giving a private or external standard legal effect by referring to it within legislation or another legally binding instrument.

Prescriptive Regulation

Regulation that specifies in relatively precise terms the actions or methods that a regulatee must follow.

Performance-based Regulation (PBR)

Regulation that specifies the desired outcome or level of performance while allowing the regulatee to decide how to achieve it.

General Duty Regulation

Regulation that imposes a broad obligation to achieve or maintain a desired standard or outcome without prescribing every specific action required.

ASIC

The Australian Securities and Investments Commission (ASIC) is an independent Commonwealth statutory regulator established under the Australian Securities and Investments Commission Act 2001 (Cth). It administers the Corporations Act 2001 (Cth) and regulates corporate activity, financial markets, financial services and consumer credit.

ASIC Purpose

Its work aims to protect consumers and investors, improve market integrity and encourage informed participation in the financial system.

ASIC Main legislative frameworks

ASIC Act 2001 (Cth) and the Corporations Act 2001 (Cth)

Corporations Act 2001 Purpose

To establish a uniform national corporate law scheme through referred State and Territory powers.

Main functions of ASIC

Company registration, surveillance and investigation, enforcement, and regulatory education and law reform.