publish by

PUBLISH BY:

MALAYSIA PRODUCTIVITY CORPORATIONLorong Produktiviti, Off Jalan Sultan46200 Petaling Jaya, Selangor Darul Ehsan, Malaysia.Tel : 603 - 7955 7266 / 7955 7050 / 7955 7085Faks : 603 - 7957 8068 / 7955 1824 / 7954 0795Emel : [email protected] Web: http://www.mpc.gov.my

© Perbadanan Produktiviti Malaysia 2014

Third Edition JULY 2014

All right reserved @ Feb 2014

No part of this publication may be reproduced, stored in retrievel system or transmitted, in any form or any means, electronics, mechanical, photocopying, recording or otherwise, without prior permission of Malaysia Productivity Corporation.

Disclaimer

This Handbook has been prepared by Malaysia Productivity Corporation from sources believed to be reliable but no responsibility is accepted by Malaysia Productivity Corporation, its employees, consultants, contractors and/or agents in relation to the authenticity, origin, validity, accuracy or completeness of, or for any errors in or omission from, the information, statements, forecasts, misstatement of facts, opinions and comments contained here in.

ISBN N0. 978-983-2786-08-5

PRODUCTIVITY AND REGULATION

Productivity is the only driver of income growth that is unlimited, as opposed to resource exploitation or increase in population and labour force participation, each of which faces natural limits. The potential for productivity growth to generate higher income for Malaysians makes it a natural and important consideration for decision makers. As such the continuing need to stimulate productivity rightly remains at the forefront of government policies.

Regulation is the lifeblood of a modern, well-functioning economy. Almost all regulations have the potential to impact on productivity, either through the incentives which they provide to businesses to change operating and investment decisions, or more directly through their impacts on compliance costs. It is inconceivable to think of a modern economy functioning without regulation. However, poor regulation can cause frustration and unintended consequences, or simply add red tape that adds nothing useful to the economy, society or the environment.

TABLE OF CONTENTS

PREFACE

1. INTRODUCTION

2. WHAT REGULATION IS BEING REVIEWED? 2.1 Written Regulation

2.2 Regulatory Administration and Enforcement

3. REGULATORY BURDENS AND UNNECESSARY REGULATORY BURDENS

3.1 What is a Regulatory Burden on Business?

3.2 Unnecessary Regulatory Burdens

4. GOOD AND BAD WRITTEN REGULATION

4.1 Writing Risk-Based Regulation

4.2 Prescriptive, Performance, in Principle and Process-Based Regulation

4.3 An Adequate Range of Enforcement Instruments

4.4 Transparency and Accessibility

4.5 Accountability and Probity

5. GOOD AND BAD ADMINISTRATION AND ENFORCEMENT OF REGULATION

5.1 Addressing Risk in Administration and Enforcement

i

1

2

810

12

1213

16

1821

25

2626

27

28

5.2 Voluntary Compliance and Assisting Compliance

5.3 Responsive Enforcement 5.3.1 Good regulators use a range of enforcement instruments 5.3.2 Good regulators use a number of strategies to encourage and assist compliance

5.4 Transparency 5.4.1 Consultation and communication 5.4.2 Publising requirements

5.5 Accountability 5.5.1 Accountability of regulators 5.5.2 Probity 5.5.3 Oversight of regulation

5.6 Minimising Adverse Impacts of Licensing and Approvals on Business

5.7 The United Kingdom’s Modernization of Administration and Enforcement

6. REGULATION IN MALAYSIA

6.1 Regulatory Transformation in Malaysia

7. REFERENCES

31

3336

37

3839414242434345

48

54

57

58

Figure 1: The Four Stages of Making and Implementing RegulationFigure 2: MPC Regulatory Review FrameworkFigure 3: A Simplified Spectrum of RegulationFigure 4: Risk-Based Regulation Framework

FIGURE

Box 1: Six Core Principles for Assessing Regulation and its Administration Box 2: Types of Unnecessary Regulatory Burdens Box 3: Key Indicators of Well-Written Regulation Box 4: Key Indicators of Good Performance by Regulators

Box 5: Better Regulation: UK’s Environment Agency’s Approach to Enforcement

Box 6: Australian Principles of Best Practice Consultation Box 7: A Statutory Regulators’ Compliance Code - Hampton Best Practice Inspection and Enforcement PrinciplesBox 8: The Macrory Best Practice Sanctioning PrinciplesBox 9: The British Environment Agency’s Vision Statement

BOXES

Figure 5: Structure of the Building Code of AustraliaFigure 6: A Responsive Regulation Enforcement Pyramid

24

35

7

14

1627

29

40

49

51

53

3

4

920

Key Points 1: Regulation under Review

Key Points 2: Unnecessary Regulatory Burdens

Key Points 3: Elements of a Risk-Based Approach

Key Points 4: Indicators of Good Transparency

Key Points 5: Indicators of Good Accountability

KEY POINTS

1115

3042

44

Australian Government Productivity Commission

Building Code of Australia

Council of Australian Governments

Construction Industry Development Board Malaysia

Department of Statistics

Good Regulatory Practice

National Institute of Public Administration

Local Authority Regulatory Services (UK)

Malaysian Investment Development Authority

Ministry of International Trade and Industry

Malaysia Productivity Corporation

National Development Planning Council

National Key Economic Areas

Organisation of Economic Cooperation and Development

Regulation Impact AnalysisNational Water Services CommissionWorld Bank Doing Business

AGPC

BCA

COAG

CIDB

DOS

GRP

INTAN

-

-

-

-

-

-

-

-

-

-

-

-

--

---

ABBREVIATIONS

LARS

MIDA

MITI

MPC

NDPC

NKEAs

OECD

RIASPANWBDB

PREFACE

In the 10th Malaysia Plan, the Malaysia Productivity Corporation (MPC) is mandated to review all regulations affecting the conduct of businesses in Malaysia with a view to modernising business regulations in order to promote enterprise growth, wealth and employment. There are two

main strands to this effort: one is impact analysis of new regulations and the other is review of existing regulation. This guide relates to the second strand. The MPC has initiated a comprehensive set of reviews of current business regulation, focusing on regulations that impact on the 12 National Key Economic Areas (NKEAs) which have been identifi ed as areas with high growth potential.

The intended outcome of the reviews is to deliver a set of regulations that will reduce the regulatory cost of doing business, help improve the business climate and support economic growth. In working towards these outcomes, regulations that effi ciently contribute to national objectives will be retained, while redundant, unnecessarily burdensome and outdated regulations will be removed or modifi ed. The reviews will not only examine the content and quality of written regulations but also their administration and enforcement.

A GUIDE TO REDUCING UNNECESSARY REGULATORY BURDENScore conceptsi

The MPC is undertaking its new Regulatory Review mandate by working closely with other government ministries and agencies. The MPC has also set out principles and guidelines on the conduct of regulatory reviews and the design of new regulations, with a view that the new and revised regulations will minimize the regulatory burden on businesses and contribute to the growth of private sector activities. This guide presents important information on the concepts which are key to these reviews and their objectives. Much of the information is based on the practices and publications of the Australian Government’s Productivity Commission (aided by advice from Ms. Sue Holmes, previously employed by the AGPC) and interviews held with some Malaysian regulators and businesses in 2012 and 2013. The intention is to increase understanding of these concepts and guide future interviews on identifying unnecessary regulatory burdens on Malaysian businesses. This publication provides policy makers, regulators and the private sector with ways to better design and enforce regulation.

Dato’ Mohd Razali HussainDirector GeneralMalaysia Productivity Corporation

A GUIDE TO REDUCING UNNECESSARY REGULATORY BURDENScore concepts ii

The overall objective of the work of the MPC on regulation is to modernize business regulations in Malaysia and create a more favourable business climate. This in turn should lead to a more competitive private sector by lowering the cost of doing business and enabling government and society to better achieve their goals. A particular focus is on enhancing existing business regulations (by way of ex-post review) and transforming business regulation-making processes (to improve new regulations before they are enacted).

This guide provides the underlying concepts by which to identify regulations which are imposing unnecessary regulatory burdens on business. In particular, this guide:

1 INTRODUCTION

defines the different forms of written regulation and the aspects of regulatory administration and enforcement which are under review

outlines the core principles that are being used to assess the quality of existing regulations and their administration

defines regulatory burdens on business and provides guidance in identifying those which are unnecessary

identifies the best practice characteristics of written regulations and the regulators (who administer and enforce the regulation) which indicate they are not imposing unnecessary regulatory burdens on business

•

•

•

•

looks at the characteristics of good quality inspection regimes, licensing and approvals

defines risk-based and responsive approaches to regulation and explains why they are likely to lower unnecessary regulatory burdens on business.

•

•

A GUIDE TO REDUCING UNNECESSARY REGULATORY BURDENScore concepts1

Economists and lawyers define ‘regulation’ in different ways. Traditionally the legal definition refers - narrowly- to a subset of delegated regulatory instruments. In contrast, economists have adopted a broad ‘generic’ definition which embodies all written legal and quasi-legal instruments ranging over primary legislation, secondary instruments, guidelines, circulars, codes, standards and others. This broader definition is adopted for purposes of this guide and for the MPC reviews.

As well as the content of written regulations, the way they are implemented, administered and enforced can also significantly impact on compliance burdens for businesses and the effectiveness of regulations. This is also under review.

Hence, for its reviews, the MPC is assessing both written regulation and the administration and enforcement of regulations. As depicted in figure 1, there are four broad stages to writing and implementing regulation: 1. ex ante analysis before new regulation is written2. writing and ratifying/approving/issuing regulation3. implementing, administering and enforcing regulation4. monitoring, reviewing and rewriting existing regulations.

Malaysia is looking at all these stages. The 10th Malaysian Plan has mandated the MPC to carry out regulatory review to make it easier to do business in Malaysia.

2 WHAT REGULATION IS BEING REVIEWED?

A GUIDE TO REDUCING UNNECESSARY REGULATORY BURDENScore concepts 2

The MPC is introducing regulation impact analysis, including cost-benefi t analysis, for all new legislation (stage 1) to ensure the approval of good quality written regulation (stage 2). It is also conducting reviews of existing regulation (stage 4) both what is written (stage 2) and how it is administered and enforced (stage 3) with a view to removing unnecessary rules and compliance costs. Figure 2 illustrates the regulatory review framework of the MPC.

ex anteimpact analysis

Stage 1

administer andenforce theregulation

Stage 3

monitor andreview existing

regulation

Stage 4draft and enact/ issue written

regulation

Stage 2

Figure 1: The Four Stages of Making and Implementing Regulation


Figure 2: MPC Regulatory Review Framework

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In conducting the reviews of existing written regulations and how they are applied, six core principles provide the framework to assess the quality of regulations and help identify where unnecessary burdens on businesses could be reduced. These principles are aligned with best practices in a number of developed countries. (box 1).

Where regulation embodies these principles it is likely to be effi cient and effective. These principles are important to both the written law and how it is implemented. The specifi c characteristics which indicate whether these principles have been met by written regulation and by the way it has been implemented are discussed in chapters 4 and 5, respectively.by the way it has been implemented are discussed in chapters 4 and 5, respectively.


Box 1: Six Core Principles for Assessing Regulation and its Administration

Principle 1: Have a proportionate and targeted response to the risk being addressed.

Principle 2: Minimise adverse side-effects to only those necessary to achieve regulatory objectives at least cost.

Principle 3: Have a responsive approach to incentivize compliance with regulation.

Principle 4: Ensure all written regulations are consistent and that regulators interpret and apply them consistently. Avoid duplication and overlap of regulations and regulators.

Principle 5: Adopt transparency criteria, so interested

parties are regularly consulted, it is clear to businesses what their legal obligations are, and that all regulations are easily accessed by everyone.

Principle 6: Accountability so that businesses can seek explanations of decisions made by regulators, as well as appeal them and there are probity provisions in order to reduce corruption.


With regard to written regulation, all types of legislative instruments used by Malaysian Federal and State Governments, as well as rules set by a Local Government, such as by-laws, guidelines, circulars, codes or policies are potentially under review. (See chapter 6 for a description of law making in Malaysia). The conditions contained in licences, permits, consents, registration requirements and leases are also under review where they impose a compliance burden on businesses or restrict competition.

Regulatory rules can usefully be considered as a spectrum ranging from industry self-regulation (where there is no government involvement), through quasi regulations (with increasing degrees of government involvement) explicit government regulation (figure 3).

The term ‘quasi-regulation’ refers to the range of rules, instruments and standards where government influences businesses to comply but which does not form part of explicit government regulation. Quasi-regulation can take many forms such as codes of practice, advisory notes, guidelines and rules of conduct, issued by either non-government or government bodies.

2.1 Written Regulation


The boundaries between these three principal forms of regulation are indistinct. For example, an industry might develop a code of practice in response to government promptings. Further, if Parliament writes into law the ability for industry codes to be made mandatory, then its character becomes less quasi-regulatory and closer to explicit government regulation.

Thus, it is evident that these three principal forms of regulation should not be regarded as mutually exclusive. It is better to consider them as lying on a continuum with no government involvement at one end and complete government control at the other end, with quasi-regulation occupying the middle ground.

Importantly, the degree of scrutiny given to these different types of instruments, both when they are being formulated and once they are in place varies signifi cantly. Usually there is more transparency and accountability attached to explicit government regulation than the other two categories. Those lower

Figure 3: A simplifi ed spectrum of regulation

Self-Regulation

Quasi-Regulation

Explicit GovernmentRegulation


2.2 Regulatory Administration and Enforcement

Most countries, including many members of the Organisation of Economic Cooperation and Development (OECD), have focused much more on ensuring the quality of written regulation than on ensuring it is administered and enforced well. This is unfortunate because how regulations are implemented and enforced can be vitally important in determining their success in achieving intended objectives and the costs they impose on businesses and others. However, some countries are increasing their focus on administration and enforcement such as Australia and the United Kingdom. Canada also requires that any regulations aresupported by adequate resourses and tools to achieve compliance (OECDa, 2002, pp. 18, 37).

There are many aspects to administration and enforcement of regulations, including:

communication training advicecreating a ‘culture of compliance’inspection penalties for non-compliance ranging over fees, improvement and prohibition notices, licence suspension or cancelation, enforceable undertakings, prosecution.


government instruments such as circulars can have big impacts but receive little scrutiny.

administering and enforcing the written regulations for which they are responsible. Key Points 1: Regulation under Review

Both written regulation and its implementation by regulators are being assessed in the MPC reviews of existing regulation:

a) Written regulation

b) The implementation of written regulation

Primary and secondary legislative instruments

Quasi or tertiary instruments such as guidelines, standards, circulars, etc.

Wrong to assume that once a regulation is approved everyone complies.

Regulators administrator and enforce written regulation.

•

•

•

•

• How regulators implement regulation crucially infl uences whether the law achieves the government’s intended policy objectives and the compliance costs imposed on business.


Chapter 5 identifi es good and bad features of these areas in order to provide guidance on how the MPC will assess whether regulators are doing a good job in

administrative and operational requirements, such as:

requirements on the way goods are produced or services supplied, such as:

requirements on the characteristics of what is produced or supplied, such as:

lost production and marketing opportunities due to prohibitions, such as:

• reporting, record keeping• getting legal advice, training

• prescriptions on production methods• occupational registration requirements, requiring professionals to use particular techniques

• being required to provide air bags in all motor vehicles• requiring teachers or trainers to cover particular topics

• when certain products or services are banned.

Regulatory burdens arise from the costs imposed by regulation and enforcement that would otherwise not arise for businesses. Where requirements from regulation create a change in business behaviour and practices, a regulatory burden can be said to exist. Regulations can adversely impact on businesses in various ways. Most fall under the following four categories of cost impacts:

3 REGULATORY BURDENS AND UNNESSASSARY REGULATORY BURDENS

3.1 What is a Regulatory Burden on Business?


While it is usually necessary that some burden is placed on business for regulation to achieve objectives, where regulation is poorly designed or written, or it is not administered or enforced well, it may impose greater burdens than necessary. In reviewing existing regulation, it is those regulatory burdens which can be considered ‘unnecessary’ that are of primary interest (box 2).

Differences, across states, in regulations addressing the same issue can also place additional burdens on businesses operating across jurisdictions. Regulations with the same objective, but imposing different requirements, can result in businesses having to plan and undertake a number of different approaches to meeting compliance in different geographical regions. If these different compliance activities yield similar outcomes, the differences can be viewed as unnecessary burdens.

In addition, a business may have to interact with more than one regulator, either within or across jurisdictions. Different approaches to enforcement by these regulators could also create additional burdens.

3.2 Unnecessary Regulatory Burdens


Box 2: Types of Unnecessary Regulatory Burdens

excessive coverage by a regulation - that is, the regulation affects more economic activity than was intended or required to achieve its objective (includes ‘regulatory creep’)

subject-specifi c regulation that covers much the same issues as other generic regulation

prescriptive regulation that unduly limits fl exibility such as preventing businesses from:

overly complex regulation

unwieldy licence application and approval processes,excessive time delays in obtaining responses and decisions from regulators

requests to provide more information than needed

requests to provide the same information more than once

rules or enforcement approaches that inadvertently result in businesses operating in less effi cient ways

unnecessarily invasive regulator behaviour, such as overly frequent inspections or irrelevant or duplicative information requests

• using the best technology• making product changes to better meet consumer demand • meeting the underlying objectives of regulation in different ways



Key Points 2: Unnecessary Regulatory Burdens

Often regulations have legitimate social, economic or environmental objectives. It is usually necessary that some burden is placed on business in order for the objectives of regulation to be achieved. However, regulations create unnecessary burdens on business where they are:

• poorly designed and written

• poorly administered and enforced.

It is important to note that the relative burden placed on small businesses may be greater than that imposed on larger businesses as they may have to devote proportionately more effort to achieve equivalent compliance. They may also be disadvantaged where regulations are anti-competitive.

an overlap or confl ict in the activities of different regulators

inconsistent application or interpretation of regulation by regulators.

Box 3: Key Indicators of Well-Written Regulations

the requirements placed on business are proportionate to the risk being regulated, in particular low risks are not addressed by imposing onerous requirements (in line with principle 1)

the regulations make appropriate use of prescriptive, performance, in-principle and process-based requirements (discussed below)(in line with principle 2)

the regulatory requirements are the minimum necessary to effectively achieve the objective(s) of the regulation (in line with principle 2)

in line with responsive regulation (discussed in chapter 5), the regulations provide an adequate range of enforcement instruments to allow regulators some fl exibility in addressing non-compliance (in line with principle 3)

the regulations are consistent with other regulations and do not create confl ict or duplication (in line with principle 4)

These indicators are derived from the six core regulatory principles outlined in box 1 (page 7):

4 GOOD AND BAD WRITTEN REGULATION

Refl ecting the six principles listed in chapter 2, there are a number of characteristics that indicate that regulations are well written and unlikely to impose unnecessary burdens on business (box 3).

1.

2.

3.

4.

5.


If the regulation has been prepared using Regulation Impact Analysis (RIA)1 - involving a full assessment of the problem and the selection of the option which maximises the net benefi t to society it is likely to refl ect the characteristics listed above and thus the preparation of a RIA is, in itself, an indicator of a well-written regulation. The Malaysian Government has now instituted a requirement that new regulations must be prepared using RIA, hence it is expected that in the future a growing number of regulations will meet this criterion.

Using RIA should ensure that, in the future, policy makers will address these characteristics during the ex ante analysis and design of regulations. However, much of the current stock of regulation was not subject to RIA. So the current ex-post regulatory reviews of unnecessary burdens on business will, as far as possible, explicitly assess the extent which existing regulation is well-written and what reforms might improve them, particularly by reducing the burdens on business.

the regulations are transparent, communicated effectively and readily accessible by everyone (in line with principle 5)

the regulations place accountability requirements on the regulator such as reporting, appeal and review provisions including some that address probity (in line with principle 6).

6.

7.

RIA1 applies a systematic set of questions in order to help lawmakers write good quality regulation. The questions are designed to: provide greater clarity over the problem being addressed, identify possible solutions and choose the best option so that benefi ts are maximised and costs minimised. RIA also emphasises the importance of consulting all parties which will be affected by the regulation.


environmental pollution, fraud, road accidents, bankruptcy, nuclear meltdowns and many more. The extent and intrusiveness of regulation should be commensurate with the risk being addressed. Where individuals, communities and businesses are able take actions to adequately address the risk, additional government intervention may not be needed.

This section looks at the characteristics which indicate written regulation is addressing risks well. Chapter 5 looks at the characteristics which indicate regulators and inspectors are addressing risks well.

Interest in risk and risk-based regulation has grown significantly in the past three decades. Risk-based regulation involves the assessment and monitoring of risk in both the design and implementation of regulation. Written regulation, which reflects a rational approach to risk, focuses on the sources of risk, provides instruments which will address them effectively without putting heavy requirements on business unless the size and the severity of the impact is large enough to justify this.

In general, regulation addresses risks to society, the economy or the environment which are not adequately addressed by individuals and unfettered markets. The types of risky events that regulation might address range over fire, flood, earthquakes, disease, food-borne illness, occupational accidents and disease,

4.1 Writing Risk-Based Regulation


The more severe the impact of a particular hazard, the more likely it is justified for the regulation to be prescriptive and impose high penalties fornon-compliance.

The concept of ‘risk’ involves a combination of the probability (or likelihood) that an adverse event (or hazard) will occur and the magnitude of the consequences of the adverse event. Serious consideration might be given to averting a very unlikely event if the potential harmful consequences are great or where individual risk is low but a very large number of people are potentially exposed. When the total size of the consequences is large enough and market characteristics mean businesses and individuals will not manage risk efficiently, governments usually take action. For example, while a nuclear meltdown is rare, its consequences are so dire that it justifies government intervention. Similarly, while of the impact of each case of food poisoning is relatively limited, the eating of food is so widespread that government intervention is common in many countries.

By designing, implementing, enforcing and monitoring regulation, government can seek to manage risk. A stylised representation (figure 4) illustrates the staged method for designing and implementing risk-based regulation, with risk as the foundation or origin of the framework. The written regulation provides the tools and rules which are available to regulators to manage the risk.


There are challenges in defining the level of acceptable risk, but as Binder (2002) notes, the greater the clarity provided, the easier it is for regulators to achieve consistency across cases and to avoid being inappropriately influenced by other factors. Government should be informed of the costs as well as benefits of achieving different levels of protection. Reducing risk to zero is rarely desirable or feasible, largely due to the impracticality or cost of achieving this standard.

In addressing risk, governments must identify the best type of regulation, including the requirements put on business and others and the enforcement tools that can

The role of government in managing risk can be typified as identifying market failures, considering the possible interventions and assessing if the benefits of government intervention (which limit the effectiveness of individual business actions) are likely to outweigh the costs. Where government involvement is justified, government defines (implicitly or explicitly) a maximum acceptable level of risk.

Figure 4: Risk-Based Regulation Framework

UnderstandingRisk Evaluation and

Communication

n

RiskManagement

Feedback

Source: Peterson and Fensling 2012

RegulatoryDesign

RiskTools

RulesImplementation Review


principle-based goals which indicate the broad intention and rely on agents to meet the ‘spirit’, rather than the letter of the law

systems-based, process-based, or management based regulations where businesses develop their own risk management strategies which are audited by regulators.

No single approach is best in all circumstances. In some cases, the initial certainty of prescriptive rules governing inputs will justify their inflexibility. In other cases, performance-based rules will allow similar certainty in terms of meeting regulatory objectives,

When designing/writing regulatory requirements, thereis often a choice between:

rules which prescribe how an outcome is to be achieved where the focus is on the methods of operation or inputs

performance-based rules which specify a particular outcome without prescribing the method to be used to achieve it (thought it is often quite precise about the outcome)

be used by the regulator, to provide protection at this level. They must also determine which regulatory body will be responsible for administering the regulation.The role of regulators in managing risk is discussed in chapter 5.

4.2 Prescriptive, Performance, In-Principle and Process-Based Regulation


but also allow firms the flexibility to meet those objectives at least cost. And in others, given the difficulties of specifying one desired outcome for all circumstances (such as duty of care) and the problems of designing the incentives for moving ‘beyond compliance’, principle-based goals will represent a better option. The advantage of systems-based regulation is that businesses are required to conduct their own risk analysis which heightens the awareness of the business of potential hazards and establishes processes to address them. However, there is the danger that the processes are developed but not systematically applied.

Coglianese and Lazar (2002, pp 205–208), have argued that the optimal choice will depend upon a number of circumstances. When objectives can be clearly defined and are easily measured (or assessed), they suggest that performance-based regulations are desirable, on the basis that duty holders can be assumed to have superior knowledge to regulators about how best to achieve a given result. Such an outcome-based approach will accordingly, be the most cost-effective. However, when objectives are not easily defined and measured, but the target group is relatively homogeneous (i.e. most enterprises have similar operations and technology tends to be stable over time), then a prescriptive approach may be both effective and efficient. In contrast, where it is difficult for government to measure performance and the target group is made up of heterogeneous firms facing heterogeneous conditions, then they argue that


systems-based regulation will probably be preferable to its alternatives.

In general, prescriptive regulation is only justified where the risks are very high (such as the threat of a nuclear meltdown) or are required to provide guidance to small businesses which do not have sufficient resources and/or the necessary skills to devise ways to comply with performance-based regulation. In the latter case, the prescriptive regulations are best provided as only one option for complying with requirements, leaving larger companies the freedom to find alternative means of compliance. Large companies particularly like performance-based or principle-based regulation because it enables them to find the most cost effective way of meeting regulatory requirements. The Building Code of Australia provides these options. It is performance-based with prescriptive, deemed-to-satisfy solutions included as one way to meet the performance requirements (figure 5).


Regulation which focuses on outcomes or processes generally provides greater flexibility thus stimulating innovation and more cost-effective solutions. Sometimes pricing mechanisms (such as taxing adverse outcomes, e.g. pollution), the publication of information on business behaviour (which can encourage businesses to improve performance) and education programmes (which changes awareness or culture) can achieve similar results to prescriptive regulation while reducing unnecessary costs on business. Traditionally prescriptive regulation, is usually contained in permits, registrations, licences, consents, authorisations, notices, exemptions, etc.

Figure 5: Structure of the Building Code of Australia

Source: BCA 2004, vol. 1, p. A0.4.

Objectives

FunctionalStatement

Performance Requirements

Building Solutions

Assessment Methods

• Verification methods• Expert judgments

• Documentary evidence • Comparison to deemend-to- satisfy provisions

Deemed-to-satisfyprovisions

Alternative solutions

ComplianceLevels

GuidanceLevel

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Risk-based regulation is part of the movement away from prescriptive, command-and-control regulation and toward performance, process or principle-based regulation.


improvement notice prohibition notice licence suspension licence cancellation adverse publicity prosecution enforceable undertaking.

It is the responsibility of regulators to apply a responsive regulatory approach towards enforcement (as discussed in chapter 5) but the range of enforcement instruments which can be used by regulators are listed in written regulation. Unless a particular enforcement instrument is listed, it would be illegal for a regulator to apply it. In order to provide regulators with the flexibility which they often need in order to encourage or enforce compliance in different circumstances, it is generally desirable that written regulation provides for a large range of possible enforcement instruments. The categories of enforcement tools to be considered range over:

4.3 An Adequate Range of Enforcement Instruments

education / advice verbal warning written directive


With regard to accountability, it is largely in the administration and enforcement of regulation that this principle is met (as discussed in the next chapter). However, the written regulation often specifi es requirements for annual reports, accountability to Parliament (or alternatives), appeal and review provisions, such as the role of ombudsmen. The adequacy of these requirements is an indicator of how well written regulation meets the accountability principle.

4.5 Accountability and Probity

For written regulation to be effective, it is important that it is readily accessible by everyone. This applies to every type of regulation from primary legislation to circulars and guidance notes. Responsibility for this sometimes resides with Parliament (or other body responsible for approving the regulation) and sometimes with the regulator of the written regulation. For the former, this can be done by maintaining and publishing lists of primary and subordinate legislative instruments. Ways that regulators can make regulations accessible and understandable are discussed in chapter 5. Having all regulations publicly accessible also helps to ensure that written regulation meets another important characteristic of being consistent with all other regulation and that it does not confl ict with or overlap other legislation. Otherwise, this creates uncertainty and confusion for business.

4.4 Transparency and Accessibility


As with written regulation, most of the indicators of good quality implementation of regulation (see box 4) refl ect the six principles listed at the beginning of chapter 1 (see box 1, page 7).

5 GOOD AND BAD ADMINISTRATION & ENFORCEMENT OF REGULATION

Box 4: Key Indicators of Good Performance by Regulators

These indicators refl ect the six core principles listed in box 1. A well performing regulator:

1. uses risk analysis to identify areas of intrinsically potential high adverse impacts and/or possible low compliance (in line with principle 1)

2. maximises the potential for voluntary compliance (in line with principles 2 and 3)

3. uses a range of enforcement instruments fl exibly in order to respond to different types of non- compliance – responsive regulation (in line with principle 3)

4. applies regulations consistently across businesses and industry sectors (in line with principle 4)

5. has no duplication and overlap of its responsibilities with those of other regulators (in line with principle 4)


6. has suffi cient transparency to enable business to know the requirements of the law (in line with principle 5)

7. maintains an ongoing dialogue between government and the business community (in line with principle 5)

8. has suffi cient accountability to enable business to question and appeal decisions and to address possible cases of corruption (in line with principle 6)

9. monitors compliance in order to assess the effectiveness of enforcement activities

10. is adequately resourced and has the skills to be able to fulfi ll its responsibilities.

Source: Based on Parker (in OECD 2000).

5.1 Addressing Risk in Administration and Enforcement

While written regulation should refl ect an assessment of identifi ed hazards and an appropriate response given their likelihood and size of impact, it is largely the role of the regulator to apply a systematic framework that prioritises the deployment of its scarce resources on an evidence-based assessment of risk (Baldwin and Black 2007; Black 2010a). For example, see the statement by the United Kingdom’s Environment Agency on its approach to enforcement (box 5).

Note: see box 1 on page 7 for a list of the principles.


Evidence helps regulators to follow a risk analysis strategy:

While regulators always need to prioritise their activities, a risk-based approach formalises and provides a structure to the decision-making process (Sparrow 2000). Most importantly, a risk-based approach means the regulator uses evidence to prioritize regulatory activities and the deployment of regulatory resources in order to make the greatest contribution to meeting the social, economic or regulatory objectives for which it is responsible.

gathering data and conducting research to aid hazard identifi cation

identifying signifi cant emerging trends to aid risk

Box 5: Better Regulation: UK’s Environment Agency Approach to Enforcement

‘is one based on the relative risks posed by different activities: this ensures society and the environment are protected in an effi cient way, and one which also minimises the burden of regulation on businesses. We focus our resources on the highest environmental risks and the poorest-performing businesses to make sure we are achieving the environment outcomes in our corporate strategy’.

Source: : http://www.environment-agency.gov.uk.


The Environment Agency of the United Kingdom states that its approach to enforcement:

disseminating observations about risks to relevant parties: researchers, regulators, business and consumers, as appropriate to aid risk management

profiling the businesses required to conform with the regulation to identify those most likely to be non-compliant.

Key Points 3: Elements of a Risk-Based Approach

A risk-based approach requires regulators to focus their enforcement activities on areas where the risk of non-compliance is highest or where non-compliance carries the greatest risk of harm or other adverse outcomes. It involves assessing hazards and managing risks rationally, using three broad stages:

hazard identifi cation risk assessment risk management.

The benefi ts of a risk-based approach are:

it directs limited resources to where there is the greatest need for them

it maximises the effectiveness of regulator enforcement

it reduces the burden on low-risk activities and on industries which have demonstrated a high probability of compliance.


assessment: the size, causes and probability of adverse events occurring

5.2 Voluntary Compliance and Assisting Compliance

In some circumstances, inspection and enforcement are less important and voluntary compliance can play an important role. Voluntary compliance is most likely where it is in a company’s own interest to behave in a socially responsible way and to comply with regulation. The most common example is where the company needs to maintain a good public reputation and thus abstains from doing things which could damage that reputation. In these cases, government regulation may play a secondary role and most regulatory resources can be focused on companies which do not have incentives to comply voluntarily.

Common examples where voluntary compliance is less likely in the absence of effective enforcement include where the product or service being sold is subject to one of a number of possible ‘market failures’, such as:

where costs or risks are not easily observed by the public, such as asbestos where it can take many years before the harm done becomes apparent

where provision of the product or service imposes costs on others for which the producer does not need to pay, such as pollution

where provision of the product or service generates benefits to society for which the producer is not paid, such as where education leads to smoother economic and social interactions due to more widely spread literacy.


In other words, markets may need to be corrected where market signals concerning a product or activity do not accurately indicate society’s preferences, so that businesses either are not rewarded sufficiently for valuable contributions or are not penalised sufficiently for negative impacts.

Where regulations are in place, regulators can use compliance assessment and enforcement regimes to encourage compliance by providing incentives such as reducing the frequency of inspections or permitting the use of a label or mark certifying a high level of compliance for those companies which have a good compliance record. However, rewards and positive incentives are suitable only for enterprises that are compliance leaders and should not be used for those with a poor compliance record or have no incentives to comply voluntarily.

The encouragement and support of business compliance through disseminating information, providing incentives, etc. is also an important component of a regulator’s enforcement strategy. Effective dissemination of information about businesses’ regulatory obligations is particularly important. Regulations in isolation cannot ensure good outcomes if, among other factors, businesses do not know what is required and are not encouraged nor assisted to comply with their obligations. Businesses need to be aware of and understand their obligations and requirements in order to actually comply with regulations.


5.3 Responsive Enforcement

In general, the regulatory literature makes a distinction between two types of enforcement strategies: a ‘tough’ deterrent strategy and a ‘soft’ advise and persuade strategy. The effectiveness of either strategy will be influenced by the nature and motivations of the business being regulated, and the skills and approach of the regulator.

On one hand, businesses which are resistant to regulation, such as ‘amoral calculators’ will only meet legal requirements if the perceived risk of harsh penalties outweighs the cost of compliance (Kagan and Scholz 1984). On the other hand, some businesses genuinely want to comply with regulation (Lamm 1992).In these cases, a cooperative advise and persuade enforcement strategy is encouraged through consultation and conciliation.

Regulators should also be responsive to different industry structures and the self-regulation of businesses. Some large corporations have their own risk-management systems in place which can be above the minimum requirements of the law. If a regulator does not take this into account, the business may have to perform additional compliance activities in order to satisfy the regulator’s requirements without contributing to achieving a safer workplace. In this case, an unnecessary compliance burden would be created by the regulator’s actions. This is one reason why process or management based regulation (described above) is often a useful approach to regulating large corporations.


However, in practice, regulators have found that they will gain better results by developing more sophisticated strategies which employ a judicious blend of persuasion and coercion, the actual mix being adjusted to the particular circumstances and motivations of the entity with whom they are dealing. The ‘enforcement pyramid’ (figure 6 below) provides a valuable way to think about how best to tailor enforcement strategies to individual circumstances. This embraces a ‘tit-for-tat’ approach in which the regulator is responsive to the past action of the regulated entity. If the regulated company complies with the regulator’s requests voluntarily, the regulator stays at the bottom of the pyramid with an advise and persuade approach, with many of the same actions as those used to encourage voluntary compliance. But if the regulated entity resists and avoids voluntary compliance then the regulator escalates up the pyramid. Thus although it is not possible for the regulator to be confident, at the outset, of a business’s motivation, this will gradually become apparent through the tit-for-tat strategy of pyramidal enforcement.

The less severe advise and persuade options are reflected on the lower half of the pyramid and the more severe punitive strategies are represented at the peak of an enforcement pyramid. In applying such an enforcementpyramid, it would be expected that the less severe options would be used more frequently, than the punitive measures higher up the pyramid.


The enforcement pyramid approach is best suited to the regulation of large organisations with which the regulator has frequent interactions. However, it can also be of use in determining which enforcement tool is most suited to the particular circumstances of a smaller enterprise with which they have infrequent contact.

Figure 6: A Responsive Regulation Enforcement Pyramid

Serious criminal& civil proceedings& banning orders

Pecuniary criminal & civil penalties

Remedial civil law-based remedies

Letters of warning & penalty notices

Investigations, inspections & examinations

Negotiation & settlement

Persuasion & education

Source: Adapted from Gilligan, Bird and Ramsay (1999)


written or verbal directive: generally, these would be given by an inspector in light of less serious breaches. If compliance is achieved, no further enforcement action need be taken.

improvement notice: inspectors can also issue improvement notices when noncompliance is detected but does not necessarily impose an immediate risk. These notices usually include directions and actions the duty holder must take in order to rectify the breach.

prohibition notice: these are issued by inspectors when an immediate risk to health and safety or equivalent is detected and a cessation of an activity is deemed necessary. The notice may include directions on how a duty holder is to remedy the risk and that activity can resume once that action has occurred.

enforceable undertaking: this written undertaking is another alternative to prosecution and requires the duty holder to remedy the alleged contravention in a manner specified, and take any actions agreed to, in the undertaking.

5.3.1 Good regulators use a range of enforcement instruments

The extent to which different enforcement instruments are used by regulators and inspectors is indicative of the extent to which they use a responsive regulatory approach. The range of instruments, ranging from ‘soft’ to ‘punitive’, are typically:


prosecution: a business can be prosecuted when a serious alleged breach has occurred. The outcome of these court proceedings could be monetary fines, imprisonment or specified undertakings among other sentences.

5.3.2 Good regulators use a number of strategies to encourage and assist compliance Regulators can adopt a number of strategies to encourage business compliance from when businesses first become aware of a regulation and when they have decided to comply. In assessing a regulator’s commitment and capacity to encourage business compliance, indicators include the extent to which the regulator has adopted:

different modes of communication

• online forms • email • phone • in writing • in person

incentives to encourage compliance • industry awards • reduced workers’ compensation premiums for good outcome or similiar

education campaigns and workshops

• information campaigns • education activities • free training • fee-based training • guidelines and handbooks


special assistance

• for small business • for non-metropolitan businesses.

Malaysia has a significant small business community. According to the Department of Statistics (DOS), there were 645,136 private sector small businesses (those with fewer than 20 employees) in Malaysia in 2011.

As small businesses have fewer resources than larger firms, small businesses have less capability to comply with regulations. Currie et.al. (2001) suggest that there is a general lack of awareness of obligations for small businesses and that awareness is an important factor influencing compliance. Fairman et.al. (2005a) argue that small businesses require special assistance from regulators. In particular, small businesses need regular contact with the regulator about relevant compliance issues, rather than merely additional general information.

The importance of regulatory transparency is reflected in the following statement by the OECD (2002b, pp. 65-66):

“The importance of transparency to the regulatory policy agency springs from the fact that it addresses many of the causes of regulatory failures, such as regulatory capture and bias toward concentrated benefits, inadequate information in the public sector, rigidity, market uncertainty and inability to understand

5.4 Transparency


policy risk, and lack of accountability. Transparency encourages the development of better policy options, and helps reduce the incidence and impact of arbitrary decisions in regulatory implementation. Transparency is also rightfully considered to be the sharpest sword in the war against corruption.”

Full and accessible information helps all businesses to compete by creating a level playing fi eld as this will enable any business to navigate the system, know its responsibilities and defend its rights.

5.4.1 Consultation and Communication

One of the best methods of achieving transparency and accountability of regulatory processes is to provide open and public access to information about processes, decisions and rules. Box 6 outlines the Council of Australian Governments’ (COAG) principles for best practice consultation guidelines for Ministerial Councils which can also be adapted by other regulators.


Box 6: Australian Principles of Best Practice Consultation

Continuity - Consultation should be a continuous process that starts early in the policy development process

Targeting - Consultation should be widely based to ensure it captures the diversity of stakeholders affected by the proposed changes

Appropriate timeline - Consultation should start when policy objectives and options are being identifi ed. Throughout the consultation process stakeholders should be given suffi cient time to provide considered responses

Accessibility - Stakeholder groups should be informed of proposed consultation, and be provided with information about proposals, via a range of means appropriate to those groups

Transparency - The objectives of the consultation process and the regulation policy framework within which consultations will take place should be clearly explained. Feedback should be provided on how consultation responses have been taken into consideration

The Council of Australian Governments has outlined seven principles for best practice consultation for ministerial councils. The principles are:

i.

ii.

iii.

iv.

.v


Consistency and fl exibility - Consistent consultation procedures can make it easier for stakeholders to participate. However, this must be balanced with the need for consultation arrangements to be designed to suit the circumstances of the particular proposal under consideration

Evaluation and review - Consultation processes should be evaluated and examined with a view to improving effectiveness. Source: COAG (2007).

5.4.2 Publishing Requirements

All regulations should be accessible to the public. The manner in which regulations are published will infl uence the cost to businesses of identifying the legal requirements relevant to them. Ideally all regulators should make all regulations accessible on the web and this can be further enhanced by having a portal that assists businesses in understanding legal requirements.

Another element of transparency is suffi cient notifi cation of new laws. An indicator for this is whether governments require public notifi cation and consultation as a legal requirement during the development of all regulations.

It is also a leading practice to make publicly available all quasi regulations, especially those that provide guidance on how to comply with legal requirements or how regulators will assess applications. These quasi regulatory instruments include policies, guidelines, fact sheets, circulars and codes, etc.

vi.

vii.


Key Points 4: Indicators of Good Transparency

effective and broad consultation

effective and broad communication

access by everyone to relevant information: • regulation accessible to all - on the web - listed on a central register • notifi cation of new laws • quasi-regulation accessible by everyone, especially where it provides guidance on how to comply with legal requirements.

5.5.1 Accountability of regulators

5.5 Accountability

The transparency and accountability of regulators is important not only to provide clarity around the way particular laws are enforced and how effective this is, but also to ensure businesses do not feel that enforcement decisions are arbitrary and without recourse. Where administrators have incorrectly penalised a business, appeal mechanisms increase the likelihood that businesses can avoid costs that should not be imposed on them.


5.5.2 Probity

5.5.3 Oversight of regulations

Allegations or perceptions of corruption affect community and business confi dence that regulations are being administered even-handedly. Lack of confi dence can lead to increased uncertainty for business, reduced voluntary compliance, increased litigation and less respect for the law. A provision for complaints to be made to ombudsmen or administrative tribunals can be an important way for businesses and others to raise concerns they may have.

As discussed in chapter 2, RIA plays an important role in infl uencing the content of a new regulation. The benefi ts of ex post implementation reviews, such as those being conducted by the MPC, include identifying regulations or elements of regulations that are not working optimally and improving the quality of future regulation by learning from past mistakes.


Key Points 5: Indicators of Good Accountability

scrutiny by other bodies • when laws are made - Regulation Impact Analysis • reviews some time after implementation requirements to prevent the restriction of competition

reviews of the stock of regulation and ‘sunsetting’ provisions

complaints and appeals

• formal judicial review • complaints and non-judicial reviews, including internal reviews • ombudsman and administrative tribunals • small business commissioners to mediate specifi c issues and to identify and address systemic issues

probity • confl ict of interest provisions • ombudsmen and business commissioners being able to investigate complaints against regulators.


5.6 Minimising Adverse Impacts of Licensing and Approvals on Business

While inspectors check whether businesses are compliant with particular regulatory requirements, licensing and approvals provide a form of gateway approval where the regulator plays the role of gatekeeper and provides a business with:

a licence to operate in a particular area if it meets certain requirements, and/or approval to conduct a particular activity if the proposal meets certain requirements.

In order for licensing and approvals to minimise adverse impacts on business, they should meet the following criteria:

the benefits justify the costs

the social/economic/environmental objectives being pursued by each type of licence and approval is clearly stated

it is clearly established that each requirement which needs to be fulfilled to gain a licence or approval, contributes to establishing the capacity or likelihood that the business will contribute to achieving the social/economic/environmental objectives of the licence or the business approval

licensing and approvals are not used to reduce competition by preventing some businesses from


operating in particular industries nor from providing certain products or services

criteria for being granted each licence or approval are proportionate to the risk or objective being addressed by the licence or approval. For example, in Australia there are different development approval ‘tracks’ (exempt, prohibited, self assess, code assess, merit assess and impact assess) that correspond with the possible level of adverse impact of purposed and thus the level of assessment required to make development an appropriately informed decision. This speeds up most development assessments and releases assessment resources to focus on those proposals which are technically complex or might have significant impacts on others

where the risks are low, establish negative licensing whereby businesses are automatically licensed to operate unless they fail to meet pre-determined requirements

facilitate the timely assessment and granting of licences and approvals

meet with applicants to explain all criteria they must meet

provide in one place and make public a full list of all criteria which outlines the conditions which must be met in order to qualify for the licence or approval

make all requirements clear and concise

•

•

•


•

•

adopt an electronic development assessment system to reduce costs for businesses and to improve consistency, accountability, public reporting and information collection/benchmarking

limit the information requirements that must accompany an application to those essential to meeting the licence or approval requirements

ensure the skills of those working in regulatory agencies include a good understanding of the commercial implications of requests and the capacity to assess whether applications indicate whether businesses will deliver on regulatory objectives rather than judging them against detailed prescriptive requirements

fees charged (if any) are only suffi cient to cover the cost of processing and assessing each application for a licence or approval.


It is helpful to look at how the United Kingdom has addressed administration and enforcement issues to see how these concepts have been successfully applied to improve the practice of regulators. In 2005, Sir Phillip Hampton led a government review: Reducing Administrative Burden: Effective Inspection and Enforcement. The Hampton Review articulated seven best practice principles for regulatory inspection and enforcement activities (known as the ‘Hampton Principles’). These principles effectively required regulators to minimise the burden of enforcement by taking a risk-based approach to secure compliance rather than routinely carrying out inspections. In 2008, the Hampton Principles were enshrined in a statutory Regulator’s Compliance Code. The seven ‘Hampton Principles’ and the Regulators’ Compliance Code are described in box 7.

5.7 The United Kingdom’s Modernization of Administration and Enforcement


Box 7: A Statutory Regulators’ Compliance Code - Hampton Best Practice Inspection and Enforcement Principles

The Hampton Review made a number of recommendations and articulated seven principles, all of which were accepted by the Government in the 2005 budget. These are:

regulators, and the regulatory system as a whole, should use comprehensive risk assessment to concentrate resources on the areas that need them most

regulators should be accountable for the effi ciency and effectiveness of their activities, while remaining independent in the decisions they take. No inspection should take place without a reason

businesses should not have to give unnecessary information, nor give the same piece of information twice

the few businesses that persistently break regulations should be identifi ed quickly

regulators should provide authoritative, accessible advice easily and cheaply

regulators should recognise that a key element of their activity will be to allow, or even encourage economic progress, and only to intervene when there is a clear case for protection

no inspection should take place without a reason.


In 2006, the ‘Hampton principles’ were embodied in a statutory Regulators’ Compliance Code which requires regulators to:

support economic progress by performing regulatory duties without impeding business productivity

provide information and advice in a way that enables businesses to clearly understand what is required by law

only perform inspections following a risk assessment, so that resources are focused on those least likely to comply

collaborate with other regulators to share data and minimise demand on businesses

follow principles on penalties outlined in Macrory (2006) when undertaking formal enforcement actions, including sanctions and penalties (see box 8)

increase transparency by reporting on outcomes, costs and perceptions of their enforcement approach.

Sources: Hampton (2005); UK BERR (2007).


The United Kingdom is one of the few countries to have established a set of best practice principles, statutory or otherwise, that can be used to guide regulators in their enforcement and inspection activities. The statutory Regulator’s Compliance Code is a leading practice approach to improve the quality and consistency of regulatory enforcement and inspection activities and, consequently, to minimize the impact of these activities on business and the economy.

Box 8: The Macrory Best Practice Sanctioning Principles

In 2006, Professor Richard Macrory conducted a review of the system of sanctioning powers available to regulators, Regulatory Justice: Making Sanctions Effective, with the aim of understanding how to reduce the inconsistency of regulatory enforcement by local authority regulatory services (LARS), while improving the level of compliance among UK businesses. The Macrory Review was directly borne from the Hampton Review, which had found that regulators’ penalty regimes were cumbersome and ineffective.

Macrory developed seven best practice sanctioning principles. These are:

regulators should publish an Enforcement Policy

regulators should measure outcomes not just outputs

regulators should justify their choice of enforcement actions each year to stakeholders, ministers and Parliament


regulators should follow-up enforcement actions where appropriate

enforcement should be in a transparent manner

regulators should be transparent in the way in which they apply and determine administrative penalties

regulators should avoid perverse incentives that mightinfl uence the choice of sanctioning response.

These principles underpin the Regulatory and Enforcement Sanctions (Regulatory Enforcement and Sanctions) Act 2008.

Sources: Macrory (2006).


..

‘What we aim for’

We know we’re getting it right when you tell us:

Our advice has helped you do the right thing for the environment. Our permitting systems are easy to use. We explained the reason for our inspection or audit and we told you what we’re trying to achieve.

We only ask you for information we really need, and we don’t ask for the same information twice. We’re working together with other regulators. We identify persistent offenders quickly. We use intelligence to tackle environmental crime.

Source : http://www.environment-agency.gov.uk.

The British Environment Agency’s vision statement

Box 9 :

A specifi c application of the Hampton and Macrory principles can be seen on the website of the UK’s Environment Agency. It states:


6 REGULATION IN MALAYSIA

In Malaysia, laws are legislated by Parliament at the federal level and by various State Legislative Assemblies at state level. Laws that are enacted by Parliament after 1946 but before Malaysia’s Independence in 1957 are called Ordinances, but those made after 1957 are called Acts. Generally, Acts are laws which are applied to all states in Malaysia, unless the Act specifically exempts the application of law to a certain state(s). The laws in Sabah and Sarawak are called Ordinances. Parliament and the State Legislatures are not supreme. They have to enact laws subject to the provisions set out in the Federal and State Constitutions.

Malaysia applies the federalism concept where there is division of power between the federal, states and local authorities in regulating business operations. At the federal level, the Parliament has the exclusive power to make laws over matters (such as citizenship, defence, internal security, civil and criminal law, finance, trade, commerce and industry, education, labour, and tourism) whereas at the state level the State, through its Legislative Assembly, has legislative power over matters such as land, local government, Syariah law and Syariah courts, State holidays and State public works. Parliament and State legislatures share the power to make laws over matters under the Concurrent List (such as water supplies and housing) but Article 75 of the Federal Constitution provides that in the event of conflict, Federal law will prevail over State law. There are supplements that apply only to


Sabah and Sarawak. These give the two states legislative powers over matters such as native law and customs, ports and harbours (other than those declared to be federal), hydro electricity and personal law relating to marriage, divorce, family law, gifts and intestacy.

Parliament is allowed to make laws on matters falling under the State List in certain limited cases, such as for the purposes of implementing an international treaty entered into by Malaysia or for the creation of uniform State laws. However, before any such law can be effective in a State, it must be ratified by law by its State Legislature. The only exception is where the law passed by Parliament relates to some aspect of land law (such as the registration of land titles and compulsory acquisition of land) and local government (Article 76).

State government shares its jurisdiction with regard to town and country planning and environmental related matters that are also assigned to the Federal Government. The Parliament in many circumstances has the power to legislate beyond the confines of the specific legislative list. This overriding legislative power has enabled Parliament to make laws with respect to land matters for the purpose of ensuring uniformity of law and policy in all the eleven states in Peninsular Malaysia. At present, the Parliament’s power to make law on the basis of ‘uniformity of law and policy’ does not extend to any land matters but only covers land tenure, the relationship of landlord and tenant, transfer of land, mortgages, leases and charges in respect of land, easements and other rights and interests in land,


compulsory acquisition of land, rating and valuation of land and local government. The complex federal-state relationship imposed by the Constitution requires close cooperation between the two levels of government. In order to manage these relations, Ministries at the federal level must closely consult with state agencies and departments in the process of drafting laws and policies so that they are not contradictory.

The local government or local authority is the third level in the system of government in Malaysia after federal and state. It has the power to collect taxes (in the form of assessment tax), to create laws and rules (in the form of by-laws) and to grant licences and permits for any trade in its area of jurisdiction, in addition to providing basic amenities, collecting and managing waste and garbage as well as planning and developing the area under its jurisdiction. Local government areas are usually consistent with district boundaries but there are some places where the boundaries are not consistent and may overlap with adjoining districts especially in urbanised areas.

there are some places where the boundaries are not consistent and may overlap with adjoining districts especially in urbanised areas.


6.1 Regulatory Transformation in Malaysia

MPC formulated the Best Practice Regulation Handbook for the government to adopt Good Regulatory Practice (GRP). The handbook will help agencies to develop a systematic way to introduce new or to amend existing regulation. A key aspect in the guidebook is the Regulatory Impact Assessment (RIA) process, which is a systematic process of assessing the impact of the proposed regulation. It is intended to promote a consistent approach to review existing or to introduce new regulation without compromising legal obligations and government policy. A few ministries e.g. MITI, MIDA and CIDB have started to modernise existing regulations using the RIA process. The National Institute of Public Administration (INTAN) has been appointed by the government to provide training for government policy makers to understand and apply good regulatory practice for formulating new regulation.

regulations using the RIA process. The National Institute of Public Administration (INTAN) has been appointed by the government to provide training for government policy makers to understand and apply good regulatory practice for formulating new regulation.


7 REFERENCES

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Sparrow, M. (2000), The Regulatory Craft, The Brookings Institution, Washington DC academic references as contained in text others as added above.


MPC SSRR Team andGroup of Researchers

Ms. Sue ElaineHolmes (AGPC)

Dedication:Special thanks to contributors to this Paper:-


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