Regulatory Impact Analysis: a tool to improve quality of regulations

Written by: Fabiola Olivia Perales Fernández | @FabiolaOPerales

Dissemination article

Regulatory Impact Analysis (RIA) is also called Regulatory Impact Evaluation or Regulatory Impact Assessment. In Mexico, formally, it is known as Regulatory Impact Statement (MIR, for its acronym in Spanish), and in other Latin American countries that initiated its adoption or implementation, like Colombia, has been called “Normative Impact Analysis”.

The RIA is a tool that has been widely disseminated by the Organization for Economic Co-operation and Development (OECD) over the past two decades, the OECD has proposed to use it systematically, from the early stages of the regulations elaboration.

To comply with this, the OECD has provided the basic principles of the RIA in some documents, giving to the member and non-member countries the opportunity to decide freely their own rules, based on the vision and priorities of its Regulatory Reform Policy, regarding the degree, depth and scope of the analysis, as well as the type of regulatory proposals that should be subject to an RIA.

OECD defines the RIA as a process of analysis to examine and measure the likely benefits, costs and effects of new or existing regulation. It is also conceptualized as an analytical report that helps governments to take decisions on public issues.

The RIA report is conformed of at least six elements: a section describing the problem to be solved, another defining the objectives of intervention, one more which defines and identifies the government alternatives or options (regulatory or not) to solve the problem, then regulators should immediately incorporate the section of assessment of impacts, through which regulators must identify, quantify and monetize (If possible) the costs and benefits of the alternatives in order to have elements that allow comparing the net benefits of the alternatives, choosing the one that generates higher benefits than costs and the maximum benefit for society; the chosen alternative should also address the objectives set out to resolve or mitigate the problem in question. Once the choice of the best option or alternative has been made, the verification and compliance strategies to be carried out by the regulators must be established from the ex-ante RIA, in order to ensure that the regulation will be implemented and applied correctly in short and medium term; finally, the report integrates in another section the strategies to evaluate the performance of the regulation in the medium and long term.In this sense, regulators must know and implement the RIA process naturally during their activities. From the beginning of the conception of the proposal, regulators have to question again and again what is the problem?, identify the magnitude and origin of the problem, have clarity about what the regulator want to achieve and in which degree, being able to be open to explore the many options available to solve the problem, and have the willingness to investigate how the same problem was solved in another country or in another city in order to analyze the results and, if appropriate, consider it as an additional choice. As the problem definition and identification of alternatives are advanced, regulators should automatically focus on identifying the impacts of the proposal, both positive (benefits) and negative (costs), direct and indirect, as well as the interest groups that will be affected and those to whom the proposal will benefit.The RIA process must be accompanied by open government exercises, such as transparency and public consultation. The RIA report should contain a section summarizing the results of public consultation, where appropriate, the views expressed by stakeholders to regulators and how these views were incorporated into the public policy decisions being analyzed.The RIA process should be immersed in the regulators’ daily activities, so that the RIA report summarizes all the efforts of analysis, discussion and dialogue between the interested parties, and show the main conclusions of the analysis. The regulator must avoid that the RIA report be a mere procedure to justify the alternative chosen before the regulatory oversight body, without concrete evidence, analysis or discussion.

The essence of the RIA process is its adoption in a systematic, intrinsic and natural way by public servants in the making of regulatory decisions and that the RIA report to serve as a communication tool, useful for transmitting to citizens and interest groups the reasons why the regulator decided to implement the regulatory measure, showing in the report the evidence found, the discussions held and the technical, legal or economic justifications that led them to choose it.

Regulations are a type of public policy that establish obligations on individuals, and therefore, they must incur in compliance costs; hence, regulators must be aware not only of the obligations they must impose in order to ensure social welfare or public interest, but also the cost incurred by individuals to meet these obligations. For the quantification and monetization of the effects, regulators must develop technical capacities on the use and application of methods and methodologies to determine the net benefits of the regulatory measure, such as: Cost Benefit Analysis, Cost Efficiency Analysis, Multicriteria analysis, to mention the simplest ones.

The art of conducting a RIA process lies in being open to break preconceived schemes or ideas about how to intervene in a public problem, as well as being open to receive relevant information from stakeholders and being willing to explore how that information or opinion strengthens the analysis and help solving the problem better.

Both the RIA process and the RIA report are intended to ensure the quality of the regulations. The analysis and discussion proposed by the RIA process promotes efficiency and effectiveness of public decisions and regulators accountability. In addition, open government exercises allow socialization and, to some extent, legitimize regulatory proposals, and promote collective intelligence.

The challenges of the correct use of RIA imply the promotion within governments and among public servants, of decision taking based on evidence and not by hunch, nor personal or group interests. They involve being disciplined in the use of the tool, seeking to do the exercises of analysis as close as it must be, avoiding to fall into simulation in order to impose a proposal, opening itself to all the interest groups regardless of whether they are regulators supporters, and avoiding the regulatory capture of regulatory institutions or the oversight body.

The burden of proper use of the RIA and its quality, reside firstly in the regulatory bodies and secondly in the oversight body. Therefore, both actors must continuously promote the development of technical skills in the regulatory reform of all their public servants, while the oversight body must have enough powers to avoid the emission of bad regulation.

The effects of poor regulation are evident for the whole society and, also are highly onerous. To mention a recent fact, in Mexico, the National Institute of Statistics and Geography (INEGI) identified in the National Survey of Regulatory Quality and Government Impact on Enterprises (ENCRIGE) that businesses in 2016 together paid an approximate amount of 1.6 billion pesos derived from acts of corruption related to regulation. Among the main causes of bribery are: to streamline procedures; to avoid fines or penalties; to obtain licenses, permits or services; to avoid inspections and to avoid Law compliance, among others.

A bad RIA or a simulated RIA generates poor regulation or poor quality regulation, which in turn damages the country’s competitiveness, undermines institutions’ public ethics and integrity, and ends up not solving the public problem that originated it

Perales-Fernández, F. (2017). Regulatory Impact Analysis: a tool to improve quality of regulations. Blog Mejores Gobiernos.

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