Risk-based Regulation: OECD Best Practice Principles, Nick Malyshev

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RISK BASED REGULATION: OECD BEST PRACTICE PRINCIPLES Mexico City, June 9-11 Nick Malyshev Head of the Regulatory Policy Division OECD

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Presentation by Nick Malyshev, Head of the OECD Regulatory Policy Divison, Directorate for Public Governance and Terrritorial Development, at the Workshop on Risk Assessment in Regulatory Policy Analysis (RIA), Session 3, Mexico, 9-11 June 2014. Further information is available at http://www.oecd.org/gov/regulatory-policy/

Transcript of Risk-based Regulation: OECD Best Practice Principles, Nick Malyshev

  • RISK BASED REGULATION: OECD BEST PRACTICE PRINCIPLES Mexico City, June 9-11 Nick Malyshev Head of the Regulatory Policy Division OECD
  • Risk = combination of probability and impact: p(I) We face many risks, e.g.: Accidents Air pollution Chemicals Climate change Disease Disasters Food Finance Tsunamis Terrorism No such thing as zero risk
  • The world appears to be getting generally safer over centuries Rising human longevity (life expectancy) Why? Increasing wealth = demand for safety (e.g. EKC) Advancing science = better detection of risk Better regulation = reduce risks But: public concern about risks continues to grow Especially longer-term, lower-probability risks Why? Increasing wealth Advancing science Greater awareness news, internet, availability Greater safety and longevity itself, so rare risks become more salient Emerging risks Declining risks, but rising concern
  • Public well-being: goal to increase net benefits to society Market failures: externalities, public goods (tragedy of the commons) Government failures: costs, new risks created, hasty response to crisis Responsibility to think through decisions Thinking ahead -- crucial for prosperity, survival Political accountability: governments held responsible for: Costs of regulation to prevent risks Burden on businesses, consumers, innovation, competitiveness Costs of failure to prevent risks Terrorist attacks, e.g. Madrid train bombings Natural disasters, e.g. Haiti earthquake, Hurricane Katrina Systemic failures, e.g. 2008 Financial crisis Diseases, e.g. H1N1, HIV/AIDS, BSE (Mad cow) Legal accountability: civil or criminal liability Why governments care about risk
  • Designing regulation to manage risk
  • Triage: selecting risks to address setting priorities Risk assessment Science: biology, chemistry, climate, engineering Social science: economics, psychology, decision science Uncertainty Errors false negatives, false positives Joint effects - multiple simultaneous risks may not be simply the sum of the individual risks Pollution Disease Terrorism Financial crisis Risk-risk tradeoffs: policies also face interconnectedness Challenges for Risk Policy
  • Spread: risks move rapidly across networks and borders Pollution Disease Terrorism Financial crisis Risk-risk tradeoffs: policies also face interconnectedness Confront the tradeoff Weigh the tradeoff See risk-superior policy options that reduce multiple risks in concert Learning: borrowing and testing ideas Over time: ex post impact assessment Across countries: hybridization Toward a global policy laboratory Challenges for Risk Policy in an Interconnected World
  • Examples of risk-based approaches
  • General principles of risk-based classification
  • Defining risk categories Three fundamental risk dimensions: Type of activity / sector Scope / size of activity scope of potential impact History of the business or of the establishment All three aspects need to be combined to do proper risk rating and determine right frequency of inspections Frequency is thus proportional to probability and magnitude of potential hazard
  • Risk categorization sectors High risk for a sector can mean different things: -High likelihood of hazard (e.g. storage of flammable materials for fire safety meat processing for food safety mining for labour safety etc.) -Possibility of a major industrial accident (not only danger on the spot but possibly chemical contamination, large environmental and/or health disaster etc.) -Potentially high number of people affected (e.g. large hotels or hospitals for fire safety large processing plants for food etc.)
  • Risk categorization establishments High risk for a specific building or establishment can mean different things: -Difficult accessibility (high-rise, underground, remoteness, narrow streets) -Potentially high impact location (proximity with large population centers or sources of drinking water etc.) -Risk of panic and other specific factors that can make escape difficult (e.g. establishment for children, etc.) -Large scale of the establishment meaning large number of people potentially affected by contaminated produce etc.
  • Risk categorization history High risk for a specific business can mean different things: -Repeated violations of rules over the years -Shortcomings which carry a particular risk for the public (e.g. lack of fire exits violation of essential hygiene rules etc.) -Attempts to dissimulate problems
  • An example of risk-based matrix
  • 15 Netherlands - State Supervision of Mines (1)
  • 16 Netherlands - State Supervision of Mines (2)
  • Risk-focus made simple?
  • Fire safety inspections planning in France France Fire Safety Regulation adopted in 1980 (updated since then and replaced by more modern approaches, but based on same principles): -Low risk (