Print Friendly, PDF & Email

Regulatory Impact Analysis (RIA) and Law Practice

A Brief Introduction – What is RIA?

Good-quality regulation is a crucial goal of policy-makers that is fundamental to the functioning of society and the economy of a country.[1] To achieve better regulation, governments are required to work systematically to ensure that the regulations they adopt and implement are of high quality.[2] Therefore, the Regulatory Impact Analysis (RIA) has been introduced to improve regulatory structures.

RIA is a systematic tool used to reach regulatory decisions. One of its key features is the consideration of the potential economic impacts of regulatory proposals.[3] It examines and measures the likely benefits, costs and effects of new or existing regulations.[4] This helps in minimising the risk of introducing poor-quality regulations, which increases compliance costs for businesses and stakeholders.[5] Besides that, with the implementation of RIA, decision-makers would have access to valuable empirical data and a comprehensive framework. This would allow them to assess their options and consequences of decisions ‘through analysing, questioning, and understanding real-world impacts and exploring assumptions’[6]. Hence, a proper application of RIA would ‘protect from flip-flop initiatives and poor decision-making’.[7]

 

History of RIA

In 1920, the RIA was developed in the United States, and this was started with economists developing methodology in counting costs and benefits in projects.[8] The RIA initiatives then began to develop progressively and significantly by international organisations such as the OECD. Today, RIA has been widely adopted by the OECD members. However, successful implementation is admittedly challenging as it requires a long-term and consistent approach.[9] In ASEAN countries, seven out of ten countries have practised RIA in policy-making, including Cambodia, Indonesia, Laos, Malaysia, Philippines, Thailand and Vietnam.[10] Although the organisation had introduced the ASEAN Good Regulatory Practice Guide[11] in 2009, it merely serves as a guidance that is not binding on the member countries.[12]

 

Implementation of RIA in Malaysia

On 15 July 2013, the Government introduced the National Policy on the Development and Implementation of Regulations (“NDPIR”) through General Circular No.1/2013 issued by the Chief Secretary of Malaysia.[13] The Malaysia Productivity Corporation (“MPC”) acts as the key agency in implementing NDPIR. To support this initiative, NPDIR has issued reference materials such as Best Practice Regulation Handbook[14] (July 2013), Quick Reference Best Practice Regulation Handbook[15] (July 2013) and Guideline on Public Consultation Procedures[16] (October 2014). The Government aims to promote the concept of Good Regulatory Practice to achieve better regulations through sound analysis, informed decision-making and transparency.[17]

 

RIA Process[18]

The first step in RIA is that the regulator must notify MPC at an early stage in the decision-making process. The notification shall be made once the administration is satisfied that regulation may be necessary, but prior a conclusive decision on whether or not to regulate is made. Notification is done by submitting a Regulatory Notification Form (“RNF”) with preliminary information in order for MPC to determine whether the proposal is ‘likely to have a regulatory impact’.

Should MPC find that there is a significant regulatory impact, Regulatory Impact Statement (“RIS”) will be prepared in coherent with the seven elements in undertaking RIA. The seven elements are problem or issue statement, objectives, options, impact analysis, consultation, conclusion and recommendation, as well as strategy for implementation. The level of analysis in the RIA will have to correspond to the likely impact of the proposal.

A proposal which is not ‘likely to have a regulatory impact’ is when the impact is minor and does not substantially alter existing arrangements. This comprises amendments to existing regulations and regulatory initiatives implemented by way of administrative circulars by any part of the Government that requires mandatory compliance. Besides that, a RIS is also not required for regulations that are implemented relating to national security and sovereignty, administrative circulars relating to the public administration, and exceptional circumstances when dealing with urgent matters which require immediate action. In these instances, RIA does not have to be undertaken and MPC should be informed and be provided with reasons for the exemption by the regulators.

Once RIS has been finalised with the incorporation of the seven elements, its adequacy will be assessed by MPC. Should MPC is satisfied, RIS will be approved and tabled at the National Development Planning Committee (“NDPC”) for notification. The regulators also should provide RIS to the decision makers to assist them in the decision-making process so the fundamental objective of RIS is successfully achieved, i.e., to provide a balanced assessment of the best available information. Further, to enhance transparency, the NPDIR also requires MPC to publish the RIS after consultation with the regulator and maintain a publicly accessible register.

It is pertinent that the regulations will be subjected to an ex-post evaluation, typically commencing within one to two years from the regulation being implemented in circumstances where regulatory proposal is being proceed despite RIA was not being conducted due to circumstances such as emergency or when the proposals have proceeded though RIA has been deemed to be inadequate.[19]

A brief outline of the RIS process is as follows:

Importance of RIA

(i) Foster an understanding of the real-world impacts of government action

RIA can improve the decision-making process through the assessment of the efficiency and the cost-effectiveness of a policy.[20] This facilitates the allocation of resources from less-efficient regulations to more-efficient regulations, which ultimately improves the effectiveness and reduces the cost of government action.[21]

(ii) Integrate multiple policy objectives

RIA can be used as an integrating framework to determine the impacts of policies.[22] It gives decision-makers the capacity to weigh trade-offs. In this sense, it is a co-ordination tool that can bring different interests together.[23]

(iii) Improve transparency

RIA exposes the merits of decisions and the impacts of actions. For this reason, RIA is closely linked to the processes of public consultation.[24] By putting emphasis on openness, RIA favours policies that serve the interests of society as a whole, rather than just those of special groups.[25]


Challenges and Risks in the Implementation of RIA (with reference to the challenges faced by other countries that adopt RIA)

(i) Analytical methods

There has been an ongoing debate on which RIA method is the best to adopt as the methods are not yet fully developed. The question of methodology poses a challenge to the implementation of RIA.[26]

(ii) Data collection

Data collected to conduct good analysis is often lacking due to poor collection strategies, which causes the process to become too time and resource consuming.[27] The underlying concern is the ‘selective provision of data by stakeholder groups seeking to promote their interests’. This leads to a common failure of fully utilising the potential of consultation strategies.[28]

(iii) Quality-control problems

Quality-control is a common problem of RIA, even in OECD countries.[29] RIA must be subject to regular evaluation by an oversight body, which has the necessary authority to contest regulators’ assessments and to demand improvements.[30]

(iv) Cultural change

A significant cultural change is crucial to integrate RIA into the policy-making process among regulators, politicians and stakeholder groups.[31] Implementing RIA is a long-term and consistent process that must be strengthened at the political level until it becomes a part of a country’s political and administrative cultures.[32]

 

Issues in Evaluating RIA Impact Statement (Malaysia)

First of all, evidence on the magnitude of the problem is not presented. Such a problem could be caused by the lack of evidence-based analysis, lack of data, insufficient analysis of impact & cost and the lack of projected analysis on status quo option.[33]

Secondly, the issue of regulators failing to identify the relevant existing regulation that may be related to the problem. For example, due to the fact that impact on stakeholder tend to be categorized very broadly, lack of information on online consultation, consultation duration is too short, report on the consultation is inadequate as well as the regulators usually provide minutes of meeting as evidence of consultation.[34]

Last but not least, objective stated are often too general and does not measure with smarter and better criteria. This could lead to options presented in the RIS are sometimes not realistic. As such, regulators should be proposing various alternative solutions to addressing problem identified.[35]

 

Areas of Law where RIA has been put into practice (Malaysia)

Intellectual Property Law

As per the Published Regulatory Impact Statement (RIS) on the Repeal of Trademarks Act 1976 and Introduction of Trademarks Act 2019.[36]

In essence, our Trademarks Act 1976 was thought to be outdated. Thus, in order to be in line with the minimum standard of protection for intellectual property imposed by the TRIPS Agreement, the Intellectual Property Corporation of Malaysia (MyIPO) decided to repeal the Trademarks Act 1976 and enact a new and comprehensive legislation, namely the Trademarks Act 2019. The Regulatory Impact Analysis was conducted in this operation.

Cooperative Law

Based on the Published Regulatory Impact Statement (RIS) on the Recommended Amendment of Co-operative Societies Act 1993.[37]

Due to the various problems with the operation of co-operative societies in Malaysia, Malaysia Co-operative Societies Commission (SKM) decided to make amendments to the Co-operative Societies Act 1993 in order to enhance effectiveness of the regulation. The Regulatory Impact Analysis was also implemented here in recommending the amendments required.

Occupational Safety and Health Regulation (Noise Exposure)

Regulatory Impact Statement (RIS) on Overcoming and Preventing Occupational Noise Induced Hearing Loss. The Factories and Machinery (Noise Exposure) Regulations 1989 does not adequately address the issues identified. The purpose of the existing regulation is to provide a legal framework to control exposure of noise, to set permissible exposure limit and exposure monitoring requirement in all factories to prevent employees from being exposed with excessive noise. However, the scope of the current regulation only covers manufacturing, mining, quarrying and construction sectors. Therefore, it was appropriate for the government to intervene.[38]

 

Examples where RIA was not implemented appropriately (Malaysia)

Tourism Tax Act 2017

The Parliament passed the Tourism Tax Act in April 2017 imposing levy on tourists staying at any accommodation made available by an operator. The proposed tourism tax legislation was expected to have a significant impact on tourism and hotel operators. However, there was lack of clarity on the goals of the proposed action and the timeframe for the benefits to be achieved in resolving the issues articulated. Nonetheless, the bill’s introduction did not conform with the National Policy on the Development and implementation of Regulations circular. Also, the ministry did not submit regulatory impact statements to the Malaysia Productivity Corporation but only notified the state of its intention to table the bill in Parliament (Ministry of Finance, 2017). Further, many affected stakeholders also claimed that they were not consulted.[39] In short, much of the issues encountered in the implementation of the Tourism Tax could have been avoided through compliance with the prescribed GRP processes outlined in NPDIR.[40]

 

Roles of Lawyers as Stakeholders in RIA Practice

Based on the chart above, lawyers may play part as either a stakeholder or an expert in a particular area of laws or industries in consultation or group discussion with the regulator when undertaking RIA after regulator notifies MPC or upon assessment when it is found out that there is a need for RIS. Consultation and group discussions are crucial in ensuring that the full range of impacts is taken into account when assessing how best to solve a problem and the transparency it fosters in building trust in the policy process.[41] Lawyers also may be part of the quality control body which its duties are among others, may assist on the drafting RIA, technical assistance, reviewing the quality of RIA and reporting on ministerial compliance with RIA.[42] It must be emphasised here that the relationship between the quality control body and regulating ministries is an important factor understanding a country’s RIA system.[43]

An example of this practice is when Malaysian competition regime engages stakeholders to discuss in the legal and economic know how, urging them to be decisive in participating, to determine the necessity of the law.[44] Besides that, the justification given by the former Domestic Trade and Consumer Affairs Minister, Shahir Samad about the implementation of GST in early 2015 include that the government was seeking more discussion and communication with stakeholders over the GST. He added that GST can only be implemented painlessly provided there was a sufficient communication plan and a proper implementation plan.[45]

Besides that, one of the basic challenges of RIA as mentioned above includes the process to obtain high-quality data. The present procedural challenge invites the involvement of lawyer to play their part as a data collector or data inspector. According to Malaysia Productive Committee (MPC), the external of the RIA conducted should be proportionate to the likely impacts or the likely impacts of the regulatory proposal. This analysis requires a good set of data which can be obtained through a careful, practical, strategic and legally permitted approach to its collection and verification by way of engaging stakeholders such as lawyers.[46] Lawyers may assist in collecting and verifying the data by conducting various official searches, and international and local legal reviews.[47]

———-

1. Rodrigo, D., “Regulatory Impact Analysis in OECD Countries Challenges for developing countries” (June 2005) Dhaka, Bangladesh, p. 3
2. Radaelli, CM., “Diffusion without convergence: how political context shapes the adoption of regulatory impact assessment” (2005) Journal of European Public Policy, 924-943. Taylor & Francis.
3. OECD, Introductory Handbook for Undertaking Regulatory Impact Analysis (RIA) 2008 www.oecd.org/gov/regulatory-policy.com
4. Ibid.
5. Ibid.
6. OECD, Regulatory Policies in OECD Countries: From Interventionism to Regulatory Governance (2002), p. 47 http://regulatoryreform.com/wp-content/uploads/2015/02/OECD-Regulatory-Policies-in-OECD-Countries-2002.pdf
7. Mohamad Izahar Mohamad Izham, The Role of Regulatory Impact Analysis in Policy-making (ZICO Law) (May 2020) p. 2 https://www.zicolaw.com/wp-content/uploads/2020/05/ZICO_1010_The-Role-of-Regulatory-Impact-Analysis-in-Policy-Making-May-2020.pdf
8. Morall, JF., “An assessment of the US regulatory impact analysis program in Jacobs, SH, Regulatory Impact Analysis – Best Practices in OECD Countries” (1997) USA: OECD: p. 71-88; Hassan, K.H., “Regulatory Impact Analysis in Legal Research: Way Forward for Malaysia Legislation”(May 2015) Mediterranean Journal of Social Sciences, Vol 6 No. 3, pp 520-524.
9. Jacobs, SH., “An overview of regulatory impact analysis in OECD countries, in Regulatory Impact Analysis – Best Practices in OECD Countries” (1997) USA: OECD: p.13-30
10. ASEAN Good Regulatory Practice Guide (2009) https://asean.org/storage/2017/09/ASEAN-Guidelines-on-Good-Regulatory-Practices2.pdf ; ibid (n 7)
11. Ibid;
12. Ibid; ibid (n 7)
13. Best Practice Regulation Handbook (July 2013), http://www.mpc.gov.my/wp-content/uploads/2017/04/Best-Practice-Handbook-2013.pdf; ibid (n 7)
14. Ibid
15. Quick Reference Best Practice Regulation Handbook (July 2013) https://grp.miti.gov.my/miti-grp/resources/pdf/6_-_Quick_Reference_Best_Practice_Regulation_Handbook.pdf?mid=680
16. Guidelines on Public Consultation Procedures (October 2014) http://www.mpc.gov.my/wp-content/uploads/2016/04/PublicConsultation-Draft-2-V2-170714.pdf
17. Ibid (n 15); ibid (n 7)
18. Best Practice Regulation Handbook (July 2013), http://www.mpc.gov.my/wp-content/uploads/2017/04/Best-Practice-Handbook-2013.pdf
19. https://www.zicolaw.com/wp-content/uploads/2020/05/ZICO_1010_The-Role-of-Regulatory-Impact-Analysis-in-Policy-Making-May-2020.pdf
20. OECD, Regulatory Impact Analysis: Best Practices in OECD Countries, Paris, (1997) http://www.oecd.org/regreform/regulatory-policy/35258828.pdf
21. OECD, Building an Institutional Framework for Regulatory Impact Analysis (RIA): Guidance for Policy Makers, Regulatory Policy Division Directorate for Public Governance and Territorial Development (2008, OECD) p. 24 https://www.oecd.org/gov/regulatory-policy/40984990.pdf
22. Ibid
23. Ibid
24. Ibid
25. Ibid
26. Ibid (n 1), p. 29
27. Ibid.
28. Ibid
29. Ibid
30. Ibid
31. Ibid
32. Ibid
33. Malaysia’s Experiences in Establishing a Mechanism for Public Consultation in Rule-making Process, https://www.wto.org/english/tratop_e/sps_e/session_09c_-malaysia_apec_roziana_othman.pdf
34. Ibid
35. Ibid
36. Malaysia Productivity Cooperation (MPC)’s Official Websites, https://grp.mpc.gov.my/static_files/uploads/publish-RIS/RIS-RUU-TM-2019-final-pass-RISTM19.pdf
37. Malaysia Productivity Cooperation (MPC)’s Official Websites, https://grp.mpc.gov.my/static_files/uploads/publish-RIS/RIS-Akta-Koperasi-1993-Akta-502.pdf
38. Malaysia Productivity Cooperation (MPC)’s Official Websites, http://www.mpc.gov.my/wp-content/uploads/2018/11/RMR-2018_FINAL.pdf
39. Seman, A and M. Majid (2019), ‘Good Regulatory Practice in Malaysia’, https://www.eria.org/uploads/media/16.AV2040_VOL4_GRP_Malaysia.pdf
40. Malaysia Productivity Cooperation (MPC)’s Official Websites, http://www.mpc.gov.my/wp-content/uploads/2018/11/RMR-2018_FINAL.pdf
41. Best Practice Regulation Handbook (July 2013), http://www.mpc.gov.my/wp-content/uploads/2017/04/Best-Practice-Handbook-2013.pdf
42. Public Governance and Territorial Development Directorate Public Governance Committee Regulatory Impact Analysis (RIA) Inventor, 29th Session of the Committee, 15-16 April 2004, International Energy Agency, Paris, https://www.oecd.org/gov/regulatory-policy/35258430.pdf
43. Ibid.
44. Competition Policy Impacting Professional Practice In Developing Economies [2011] 5 MLJ i
45. Ibid.
46. Malaysia Productivity Cooperation (MPC)’s Official Websites http://www.mpc.gov.my/ria/#1460051247868-0d101ec7-73df
47. Ibid.

 

Prepared By:

M Inamul Hassan Shah (Senior Associate 2) HassanShah@azmilaw.com

Rizq Nurrqausar R M Bakri (Trainee Solicitor) rizqausar@azmilaw.com

Jess Ho Jia Hui (Trainee Solicitor) jess.ho@azmilaw.com