External Advisory Committee on Regulatory Competitiveness: Reflections on the effects of COVID-19 – Fall 2020
From September to November 2020, the External Advisory Committee on Regulatory Competitiveness (EACRC) held a total of 10 meetings where the following topics were discussed:
On this page
The Red Tape Reduction Act (one-for-one rule)
Stakeholder feedback on the Red Tape Reduction Act (one-for-one rule):
The Treasury Board of Canada Secretariat (TBS) led a consultation in summer 2019 on four initiatives related to regulatory modernization. The consultation included questions to inform the review of the Red Tape Reduction Act. The input received was heavily biased towards an industry perspective.
Most respondents were supportive of the rule, while some respondents thought that the rule was an impediment to regulators being effective, and they advocated for its removal.
Other themes raised during the consultation included:
- the Act’s focus on administrative burden versus compliance burden
- the lack of effectiveness of the rule in general
- the cumulative burden of regulations (that is, administrative burden is just one piece of the puzzle)
Observations about the one-for-one rule
Opportunities
As an instrument, the one-for-one rule:
- aims to control administrative burden in the flow of regulations overall
- allows for periodic check-ins in the regulatory system
Challenges
- It is unclear how the one-for-one rule addresses multiple levels of burden and compliance costs or how the new regulations (put in place in the last two to three years) manifest themselves in this rule
- The rule applies to all new and amended federal regulations that impose burden on business and targets only administrative costs
- As an instrument, it would need to be more granular to help better understand what it might mean for different sectors, regions or specific companies
Regulatory stock reviews
Section 7.2of the Cabinet Directive on Regulation (CDR) requires every department to go through each regulation in their stock and assess whether it meets the public policy objective it is set out to accomplish, including whether it is being implemented effectively.
Opportunities
- Allows for the retrospective review of regulations and regulatory processes
- Can help to answer the question: “Are there ways that the burden on regulatory parties can be reduced while obtaining the same policy intent?”
- The targeted regulatory reviews currently underway are a form of stock review (a review of the stock through a narrow perspective, such as digitalization)
- The stock review requirement was only implemented in 2018; it is an area that could benefit from the committee’s advice (for example, to enhance stakeholder engagement or transparency of the process, ensure that key considerations address regulatory competitiveness)
Regulatory competitiveness and compliance costs
Multiple levels of burden and compliance costs exist that impact competitiveness.
Challenges
- Compliance costs relate directly to achieving the public policy objective of protecting the health and safety of Canadians and the environment
- Compliance costs and their effects are examined through Cost Benefit Analysis (CBA) and published in the Regulatory Impact Analysis Statements (RIAS). Performing this analysis is a requirement of the Cabinet Directive on Regulation
- It is difficult to ascertain all compliance burden (administrative burden is used as proxy)
Regulatory competitiveness
Competitiveness and culture change for regulators
Making competitiveness a key consideration will help change the culture of regulators.
- Regulators don’t always think about competitiveness; by making it a key consideration, we can contribute to a shift in thinking and culture change
- Current regulatory modernization efforts are also pushing regulators to think about competitiveness considerations (for example, our committee, the targeted regulatory reviews, the Centre for Regulatory Innovation and the Annual Regulatory Modernization Bill)
Investment attractiveness as a key element of competitiveness lens
The breadth and size of investments and businesses are also linked to competitiveness. How investors make decisions about where to put their funds is linked to competitiveness; this includes looking at a country’s regulatory system and political system. Investment attractiveness can be about sustainability (not just growth). It can also be about funding innovation and expertise, and attracting talent; when investments leave the country, talent also leaves (we saw this in the resource sectors in Canada).
Focus on simplicity for implementation
Canada needs a targeted approach, focusing on areas creating the biggest impact on competitiveness. There is a range of options for how this lens can be implemented, from providing guidance all the way to imposing it; we could start slowly – pilot or test out key elements.
A big challenge – changing the culture of regulators
The challenge is that risk aversion is part of the culture of regulators. For example, when new technology is introduced, it is not always straightforward for the regulator to determine how to handle the new technology (from a regulatory perspective).
Opportunities
- Experimentation is an opportunity to change the culture of risk aversion; it has the potential to empower innovative thinking. Experimentation puts more information in the hands of regulators, which supports better policy decision-making
- This speaks to the regulator as a catalyst for driving innovation. Departments are starting to take this into consideration
Opportunities and challenges for innovation and non-traditional solutions
Predictability versus agility
There is conflicting pressure between having a regulatory system that is predictable (stable) and also agile so that it keeps pace with innovation (for example, how can you be predictable if innovation takes you in different directions you didn’t anticipate?)
Part of the solution is co-development – involving the right people from the beginning. This also relates to experiments (vaccine development for COVID-19 provides lessons on co-development).
- Allows regulators to anticipate needed changes and establish a regulatory path that keeps pace with innovation for the long term
- A hurdle will be IP protections; transparency for some industry players may be a non-starter.
- For a model, look at process used to establish novel foods legislation and rules around genetically modified foods by Health Canada in the 90s – they were able to tackle IP and confidentiality issues from biotech industry
In an ideal world, we would have regulations calibrated to different sectors and innovators that would drive innovation; however, we have limited regulatory resources.
- Need to inject dynamic predictability into the system (for example, how the Bank of Canada recalibrates based on changing conditions but gives a directional indication that informs people about the factors under consideration for those changes)
- This requires identifying key areas where we have unique challenges or unique industrial opportunities and where we want regulators to be at the leading edge of innovation.
- This may mean trade-offs in other areas (such as integration by reference or accepting evaluations from other leading jurisdictions)
Digitalization of government
The government was able to work around technological deficiencies to deliver fiscal programs to individuals and businesses, by focusing on outcomes versus processes.
- Moving forward, departments will need to focus more on how they operationalize policies and programs (and make significant life-cycle investments aimed at improving the functionality of these systems)
It is absolutely the time for a push on digital solutions – from a regulatory standpoint, the ability to lower compliance cost is linked to digital.
- Are there other areas where the system is hesitant and could focus on an outcome? Is there an area where we can be opportunistic, where the process friction impedes the achievement of expected outcomes?
- How do we have a regulatory system that fosters innovation without a modern system?
Exemptions to support experimentation
The proposed temporary regulatory exemption appears to be more of a patch to deal with a new problem, rather than an approach to fixing the regulatory system so that it drives innovation. It is important to have conditions and criteria and to be transparent, such as:
- having a mechanism that permits lessons learned from the experimentation to feed back into the system and the regulation itself
- demonstrating transparency throughout the experiment
- taking a risk-based approach (such as implementing a pathways of effects protocol to demonstrate that a plan is in place if something were to go wrong)
- co-developing with the right players in the room
Risk management
A core function of government is to mitigate risk for its citizens. In their responses to the pandemic, Canadian governments were willing to take on additional financial risks to mitigate the risk of an economic collapse.
The risk trade-offs need to be explicit.
We used a risk-based approach, accepting risk on the process side that we never would have taken before, but that permission was not extended to all areas of government; it was very focused on health or economic performance.
- We can do more in limited areas, but we cannot take this risk-based approach broadly to all policy areas
- If there are areas of the economy that we believe can be stronger elements of a going-forward strategy, there will be greater appetite for looking at bolder actions in these areas (fiscal and regulatory)
We have a government that understands risk, weighs outcomes and jumps more quickly to an appropriate solution.
- Is this sustainable? How do we build on the government’s ability to move quickly and respond to the pandemic, so that it can enhance its capacity to make further progress on initiatives such as improving the regulatory framework?
The effects of COVID-19
Lessons from COVID-19
Significant asymmetry in impact of pandemic on economic sectors:
- Misalignment between labour force and labour demand
- Federal programs aimed at leaving no one behind, but see fractures between smaller businesses and larger businesses that will need to be addressed for the recovery
- International economic environment has changed markedly
Digital modernization was an important aspect of the response:
- The government made huge progress; however, fractures in how businesses were able to adapt to digital economy, with some being left behind
- Other countries also expanded digital capacity; this may impact Canada’s ability to compete
- The government will need to be more open than it is used to being, but will also need to protect citizens from fraud linked to technology
Canada did better in many aspects compared to other countries, but not as well in other aspects.
- Differences are likely due to several factors (for example, differential use of technology; differences in social norms; ability to intervene rapidly in a more centralized manner; size of the country; or differential in public health capacity between countries)
The pandemic highlighted advantages and challenges of working in a federation (such as rights of citizens to be protected lie in different levels of government; tragedies in long-term care facilities)
- Canadians generally proud of a united approach; however, there is a desire at the local level of being more autonomous
- It is not clear whether we will emerge with a greater sense of pan-Canadian collaboration or if it will lead to greater resistance
Interconnectivity between sectors, and related benefits and risks, have become clearer:
- COVID-19 has given us the opportunity to look at broader impacts of the regulatory environment (that is, beyond the specific sector that the regulation has been developed to address)
Interconnectedness/connectivity
The pandemic has put a spotlight on interconnectedness and connectivity, pushing us to look at things as an ecosystem versus sector by sector.
- Need to take that perspective and carry it forward through the work that we do
- The work of the committee is more important, not less important
- Interconnectedness impacts everyone (small businesses, big businesses and citizens)
Siloed approach to regulatory development by departments has unintended consequences.
- May want to start by looking at how regulations touch different industries (for example, using a survey of sectors – looking at a few main ways that regulations have an impact on competitiveness)
Huge opportunity to view how we tackle red tape differently.
- Tempting to take siloed view; a more holistic approach is needed
- Past actions on regulatory competitiveness have been too narrow of a focus
Outcomes and accountability
Governments being driven by outcomes instead of process during the pandemic is the beginning of a culture change (“have we done the right thing?” versus “doing it right”). A regulatory system is about both outcomes and accountability. It is a balancing act.
During the pandemic, risk management shifted from process to outcomes, while urgently focused on fighting the health and economic risks of the pandemic.
We shouldn’t underestimate friction in the system, even with the pandemic; it’s not entirely straightforward, even in this context.
Reducing compliance costs and focusing on bad actors can help reduce unnecessary friction.
- A great deal of friction is in the shared regulatory space
- Comparisons to other countries are not always helpful
It will be opportune to map out the points of intersection on a specific issue, and which departments and agencies are implicated, to work through the mechanics of getting to the desired outcome.
There is a risk that the government will come to the table once solutions are in place (this is how we will do it) and without asking regulated parties if there is a better way to move forward.
- The pandemic has brought to focus the importance of discussions on operational impacts
Regulatory excellence
The regulatory system was fast, agile and nimble in responding to COVID-19. The usual attitude to move slowly, with care is appropriate; however, with support from Canadians, we will be able to move quickly on other aspects going forward, while ensuring prudence and care.
Regulations need to be relatively agile to adapt to realities that can be fast-changing. That is not typically how regulations are seen or designed.
- Unprecedented flexibility observed in regulatory change and adaptation to avoid food shortages during pandemic response; we asked a lot from the agri-food sector
- How do we trigger putting flexibilities back in place in a timely fashion (for example, to address risk of food security in the future)?
- How do we advance food regulations while being mindful of the sacrifices and suffering that sectors had to endure?
- Need to focus on resilience and integrity of supply chains through regulations so that plans are in place if worse-case scenario happens due to another crisis