At the end of 2009, the Organisation for Economic Cooperation and Development (OECD) added to the long list of regulatory papers highlighting the importance of data quality in the oversight function with a paper on regulatory systems. The regulatory policy committee report, Indicators of Regulatory Management Systems, highlights the need for greater consistency in terms of treatment of data by regulators and a renewed focus on data quality.
The OECD paper highlights a number of what it calls “good regulatory management practices” that should be adopted by its constituent members. It notes the current divergent practices with regards to regulatory oversight amongst these countries: “Despite the apparent trend to consolidation, countries continue to differ significantly in the focus and scope of their regulatory management systems. In particular, the institutional capacities for managing regulatory reform, and the extent of the application of regulatory impact analysis (RIA) and consultation processes, vary across countries. Programmes to measure and streamline administrative burdens which were pioneered by a handful of OECD countries are gradually being transferred to a wider group, with however significant practical differences in implementation,” it states.
The group suggests that this divergence is the result of the choice by various regulators to adopt certain strategies following individual cost benefit analyses. The goal of the OECD committee itself is therefore to highlight and possibly iron out some of these inconsistencies in order to improve the oversight function globally and to allow for better global regulatory cooperation.
The report is based on a 2008 survey of the OECD’s members but also draws on country responses to its survey of regulatory management systems conducted in 1998 and 2005. The report stresses the importance of data quality both for the peer review process and across regulatory systems in general. “Experts from all OECD member countries and country experts working at the OECD scrutinised the data for the indicators of regulatory management systems,” states the report. “The data check aimed to enhance the quality of the data and improve its consistency over time as well as the comparability of data across countries.”
According to the OECD, this new methodology contributed to improving the comparability of the data across countries and over time. “The process also served to reduce the number of missing answers significantly,” it states. The ability to garner a more accurate snapshot of the use of regulatory data allowed the group to better track performance of these systems, it claims.
The basics are there in terms of policy, says the OECD, but much is lacking in implementation. For example, on the policy front, most regulators now have in place set statements on their overall regulatory policy, according to the findings of the report, although the focus of these policies differs across countries. “International commitments are mentioned by over two thirds of the countries as a motive, but the main motives for reform are primarily found in the domestic policy agenda,” says the report.
In terms of implementation, industry consultation processes vary widely between jurisdictions with respect to the “timing, availability of guidelines and the degree of openness of the process”, it states. The level of data available to industry practitioners during the reform process is therefore much more detailed in some countries, such as Canada, compared to others. “In Canada, specific efforts are made to provide a reasonable amount of time for review and comments by the public. There is a minimum period of 75 days for trade related regulations,” it continues.
Regulators may be concerned with the level of detail being provided to them by financial institutions in order to track systemic risk, but data availability and consistency on regulatory reform is also a key issue. The OECD report suggests that greater global consistency within the reform process to the level of data quality and availability about the changes going on and what they mean is key to the future. It also stresses the importance of both clearly explained justification for regulation and impact analyses in order for firms to comply properly. “RIA improves the use of evidence in policy making and reduces the incidence of regulatory failure arising from regulating when there is no case for doing so, or failing to regulate when there is a clear need,” it contends.
The OECD concludes by indicating that it will be conducting more research on cross border data sharing with regards to regulatory systems and the use of risk assessment methodologies. Overall, the paper highlights the importance being placed on data quality and best practices within the regulatory community as well as the industry at large. It suggests that regulators also must invest in their data systems in order to meet the challenges of the new market order.