Revolutionary regulation reforms receive Royal Assent

25 July 2008

Professor Richard Macrory (UCL Laws) has seen his set of recommendations on regulatory reform passed into law – just two years after submitting his report.

Professor Richard Macrory

The Regulatory Enforcement and Sanctions Act received Royal Assent on Monday, providing new framework powers for regulators and local authorities throughout England and Wales. The government commissioned Professor Macrory to review regulation and compliance in 2005, and his report, ‘Regulatory Justice: Making Sanctions Effective’, was published a year later.

The report made a series of recommendations, the most important of which being that the range of sanctions available to regulators should be increased. Before, if a regulator wanted to impose a sanction for non-compliance, they could only do it through the criminal courts.

Professor Macrory developed a set of six principles that should underlie a modern regulatory sanctioning system – and which are now known as the ‘Macrory Principles’. Of these, the two most important are that the purpose of a regulatory sanction is not to punish per se but to get the business back into compliance, and that a sanctioning system should ensure that no financial profit is made from non-compliance.

Against these principles, Professor Macrory found the heavy reliance on the criminal law under current arrangements to be wanting. It was often an ineffectual way of getting businesses to comply with regulations. Sometimes the fines were not enough to deter wrong-doing organisations, and the imposition of a criminal conviction – often for mistakes rather than wilful actions – meant that some regulators chose not to pursue cases, leading to a compliance deficit.

Now, following his recommendations, regulators will be able to impose administrative fines and other sanctions with an appeal to a specialised tribunal in cases where they feel the criminal process is unjustified but a sanction required. Penalities may end up higher than they are now, but companies and individuals will not be unnecessarily criminalised for non-compliance. The criminal law will be largely reserved for the truly rogue operators or the most serious of breaches.

The other major feature of the report was the issue of governance for regulation. With the use of civil penalties as sanctions, regulators run the risk of being viewed with suspicion. Parking tickets are an example of where fines are imposed because of non-compliance with a regulation, but people often perceive the fines to be aimed more at income-generation for the regulator than about persuading people to obey the rules.

As a result, Professor Macrory made important recommendations concerning governance. Perhaps the most important is that no income from penalties should ever go direct to the regulators themselves – so they cannot be accused of money-making. The other is that openness is very important to the process: regulators should report annually on their activity so that their behaviour is transparent to the parties being regulated by them, as well as to the wider public.

Professor Macrory’s recommendations were accepted in full by the government, and the new Act takes forward his conclusions on governance and administrative penalties. Further suggested reforms to criminal sanctions are expected to follow in future legislation.

It seems that his report is also having an impact in other countries. Though originally only based on regulators and local authorities in England and Wales, several overseas authorities have expressed interest in his conclusions. Professor Macrory will be the keynote speaker at the Australian Environmental Law Enforcement and Regulatory Network’s annual meeting in October, and bodies elsewhere, in countries such as India, have also indicated that they would like to find out more about the Macrory Principles.  

Professor Macrory commented: “Many of these issues have been discussed for 15-20 years now, but with little appetite for real change. This new legislation – and in particular the powers it provides for civil sanctions – is potentially a revolution in regulatory reform. As a mainly academic lawyer it is astonishing to see one’s recommendations enacted within just two years – it’s a very short timeframe for this sort of legislation and is very pleasing.”

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