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The Policy Framework

Policy Framework for Occupational Regulation: A
Guide for Government Agencies Involved in Regulating Occupations

Competition and Enterprise Branch

[ Last Updated
9 December 2005 ]

Document
Table of Contents

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Assumptions Behind the Framework

When is Intervention in an Occupation Necessary?

Nature of Risk

Industry Or Government Regulation?

Industry Self-Regulation

Case for Government Intervention

Means of Occupational Regulation by Government

Non-Statutory
Means

Types
of Government Occupational Regulation by Statute

Which Form of Occupational Regulation Through Statute is
Most Appropriate in a Given Case?

How Should Occupational Regulation by Government be
Designed and Implemented?

Specific Additional Features Needed in Occupational
Regulation Regimes

Assumptions Behind the Framework

These are:

intervention by Government in occupations should generally be used only
when there is a problem or potential problem that is either, unlikely to be
solved in any other way, or inefficient or ineffective to solve any other way.

the amount of intervention should be the minimum required to solve the
problem

the benefits of intervening must exceed the costs.

Chart 1: Decision Making Process for Government Involvement in
Occupational Regulation

STEP ONE: IDENTIFY WHETHER INTERVENTION IN AN OCCUPATION IS
NECESSARY

Consider the nature of the risk from the occupation:

probability of significant irreversible harm occurring

availability of other means of handling risk (e.g.
insurance).

If significant irreversible harm is likely
there is a case for intervention in the practice of the
occupation.

STEP TWO: IDENTIFY WHETHER INTERVENTION BY GOVERNMENT IS
JUSTIFIED

Consider whether existing means of protection from harm for
consumers and third parties are sufficient (e.g. civil law, consumer
legislation).

Consider ability of industry to regulate itself

Consider likely effect of intervention by Government

If significant harm is likely, existing means
of protection are insufficient, the industry is unable to regulate itself
adequately and intervention by Government is likely to improve outcomes,
there is a strong case for Government intervention.

STEP THREE: IDENTIFY MOST EFFECTIVE FORM OF GOVERNMENT
INTERVENTION

Consider nature of problem posed by the occupation. Would it be
solved by:

provision of information to consumers;

training of practitioners;

setting and enforcing standards;

specifying services Government will purchase;

legislation regulating practice of
occupation?

If only a specific aspect of the practice of
an occupation poses a threat to consumers or third parties, the best
solution is to target that aspect rather than legislate to regulate the
occupation.

STEP FOUR: IF LEGISLATION IS REQUIRED TO REGULATE AN
OCCUPATION WHAT FORM OF REGULATORY REGIME IS NEEDED?

Disclosure

Registration

Certification

Licensing those entering an occupation

Licensing workers in an occupation imposes
costs and reduces flexibility more than other means of control and should
be reserved for occupations where there is a high need for control for
safety reasons. Any of the other methods are likely to be adequate control
for occupations that do not affect health or safety.

STEP FIVE: WHAT LEGISLATIVE PROVISIONS ARE NEEDED TO
REGULATE OCCUPATIONS?

(Examples of legislative provisions covering
regulation for the different types of regulatory control are available
from the Competition and Enterprise Branch of the Ministry of
Commerce.)

When is Intervention in an Occupation
Necessary?

A key trigger for intervention being necessary is whether there is a
possibility that incompetent service by members of the occupational group could
result in significant harm to the consumer or a third party. Nearly all
occupations have the capacity to cause harm that is not significant. However
given the compliance costs of intervening in occupations, it is important to
limit intervention to cases where the harm has the potential to be
significant.

Significant harm is defined as covering significant harm to one person or
moderate harm to a large number. Moderate harm to a large number might arise
from one event or from the aggregated actions of different providers of a
service.

Significant harm that is irreversible (such as permanent disability) is more
likely to justify intervention than reversible harm (such as moderate food
poisoning).

Nature of Risk

The need for intervention depends upon the nature of the risk of significant
harm from the incompetent performance of an occupation.

Risks may also be voluntary or involuntary. Voluntary risks are those that
the public generally know about (or could be expected to know about) and
therefore avoid or control. For instance deep sea diving is a voluntary risk
while working in a building that does not meet basic safety standards is an
involuntary one.

There is a possible case for intervention where there is a risk of
significant harm, the harm is irreversible and the risk involuntary but there is
a low probability of the harm occurring. Similarly there is a possible case
where the harm is reversible but the probability is high. There is also a
possible case where the harm is reversible and the probability of harm occurring
is low but the risk is an involuntary one.

There is a possible case for intervention when the risk of significant harm
is highly probable, whether the risk is voluntary or involuntary and whether the
harm is reversible or irreversible.

Chart 2 illustrates the relationship between the type of harm and the nature
of risk and the case for involvement in regulating an occupation. Note that
while this framework contains high level principles about the nature of risk and
when intervention is justified, concepts such as "significant harm" cannot be
defined with precision and may mean different things under different
circumstances. The broad principles in Chart 2 need to be applied in the light
of the particular circumstances relating to an occupation.

Chart 2: When is There a Case for Intervention in an Occupation

See attached diagram (6 KB PDF)

Industry Or Government Regulation?

There are potential advantages and disadvantages from having an industry body
control entry and other aspects of occupational regulation as opposed to having
government involvement.

An industry body would have expert knowledge, but potentially stands to
gain monetarily by restricting entry to an occupation

A government agency may lack the relevant industry knowledge and may be
apt to be more inefficient than an industry body. However it may have
advantages in terms of impartiality. There is a need to consider these
trade-offs when deciding on the most appropriate form of regulation.

Industry Self-Regulation

Industry or occupational groups have means to regulate themselves including:

Codes of practice: Members of an occupation can agree to impose on
themselves codes of conduct or practice with the aim of providing benefits to
the consumer and/or protection from harm that could be caused by members of
their occupation. For example groups can establish agreed standards of
training, rules that regulate behaviour in the workplace (such as safety
procedures), processes for monitoring the performance of their members, and
dealing with complaints. (For example the Advertising Standards Authority in
association with the media maintains a code of acceptable standards of
advertising and a complaints and disciplinary process which advertising
companies agree to abide by.)

Voluntary accreditation systems: Businesses or practitioners can
seek accreditation but a failure to be accredited does not prevent them
carrying out their business. The occupational group concerned decides upon the
requirements. These may include particular qualifications or bond arrangements
and may specify different levels of accreditation. This system gives the
public information about the quality of the service without restricting entry
to the occupation. For instance the Master Builders Association operates an
accreditation scheme. Members of this are marked out as likely to provide
superior quality work. In addition, membership provides assurance to the
customer that complaints will be dealt with by a third party, and financial
losses made good through the Association.

Members of occupational groups often have strong incentives to self-regulate.
In addition to avoiding harm to users of their service they also want to
maintain the good standing of their occupation with the public, and to promote
it.

Some occupations use combinations of the means of self-regulation outlined
above and some have self-regulation processes which are backed up by
legislation.

Case for Government Intervention

The strength of the case for government rather than industry intervention
depends upon a combination of the nature of the harm that could occur from
incompetent, reckless, or incomplete provision of a good or service from an
occupational group, and the availability of means other than government
intervention to avert or remedy any harm.

Government (rather than industry) intervention would generally be required
when:

significant harm to consumers or third parties is possible; and

existing means of protection from harm for consumers and third parties are
insufficient; and

intervention by Government is likely to improve the outcomes; or

there is market failure which industry cannot remedy; or

when the industry is unable to regulate itself because of the costs
involved.

Means of Occupational Regulation by
Government

Non-Statutory Means

The Government has means other than occupational regulation by statute to
reduce the risk that services provided by members of an occupational group may
harm consumers or third parties. These are:

Information provision: The Government can produce information for
the public to make consumers aware that some services provided by occupations,
if performed incompetently or dishonestly, could pose a risk. Information may
also be provided to assist consumers to choose competent practitioners and be
aware of the remedies available to them through consumer legislation.
Information may also be provided through legislation which compels people
providing a service to disclose relevant information to the customer.

Training: Government funds training and provides the means of
assessing training to ensure that members of an occupational group are trained
to a sufficient level to carry out their tasks competently and safely.

Provision for setting and enforcing standards: Rather than
regulating a whole occupation, some legislation, for example the Health and
Safety in Employment Act, makes provision for safety standards and codes of
practice to be established for particular tasks. Such legislation also
provides for inspection by Government agencies and for penalties to be imposed
for non-compliance.

As a major employer and purchaser of services. Where the Government
is the major employer of members of an occupation group (such as for nurses or
probation officers) it can specify the standards it requires practitioners to
meet. The Government can also choose to purchase (or subsidise) only those
services provided by practitioners who met pre-defined standards, such as
having particular qualifications. (For instance re-imbursement of treatment
costs through ACC is made only to providers with particular
qualifications.)

When the use of these methods is more likely to be effective than regulation
of an occupation by statute depends upon the nature of the problem to be solved.
For instance if the problem is that consumers do not have enough knowledge to
pick competent practitioners the answer may lie in ´a`. When there is no
assurance of quality of providers the answer may lie with setting up training as
in Option ´b`. Where some, but not most of the tasks carried out, present a
hazard, option ´c` might work best.

Types of Government Occupational Regulation by
Statute

The main types of control Government exercises through occupational
regulation legislation are:

requiring disclosure of information about the service or the service
provider (Disclosure);

requiring practitioners to identify themselves in a public way
(Registration);

distinguishing particular types of service from others through protecting
titles (Certification);

restricting some tasks to particular members of an occupation (
Licensing tasks); and

controls on entry to the occupation (Licensing).

Disclosure: Providers of a service are required to disclose
specified information to prospective users of the service. For instance
investment advisers must provide information about how they handle investors'
money, what records they keep, and whether they have been convicted of a crime
of dishonesty in the previous five years. Disclosure is used where the threat
is to individuals' finances and customers have a choice of whether to use a
particular service or not.

Registration: Service providers give their names and addresses and
pay a fee. Registration is usually used where the threat to public health,
safety or welfare is minimal. There are no restrictions to entry to the
occupation apart from the requirement to be on the register if you wish to
enter, or continue to practise, a particular occupation. Registration does not
convey any suggestion of competence or quality of service. It has
administrative benefits, such as providing a means of identifying
practitioners so information can be provided to them and it may be used to
enforce other legislation. (For example, having a register of secondhand
dealers may assist the police in investigating thefts.)

Certification: An agency is empowered by statute to certify to the
public that individuals have satisfied particular requirements that indicate
their competence in a particular field. The certified practitioner is given
the exclusive right to use a certain title. (For instance, "Registered
Psychologist" or "Chartered Accountant"). Those who are not certified can
offer their services in competition with certified practitioners but under a
different title. Certification provides information to the public by giving
assurance that the practitioner has met certain requirements at the point of
certification. It does not deal with the quality of the work done or the
competence of the practitioner once the person has been given the right to use
the certified title, except that certification is usually accompanied with
disciplinary processes aimed at providing a means of removing the right to use
the protected title if the practitioner falls below the standards acceptable
to the regulating body.

Licensing tasks: Legislation involves granting an exclusive right
to perform certain tasks to defined groups of people. For instance, only
registered medical practitioners, dentists and veterinarians may prescribe
drugs. Regulation of this kind is generally used where poor performance of a
particular task (e.g. administration of drugs and anaesthetics) is likely to
impose severe costs on consumers or where the government wishes to control who
is to carry out certain functions for the state (such as certifying deaths for
example).

Licensing of tasks is more flexible than licensing members of
a particular occupation and leaves some scope for multi-skilling. It reduces
competition less than licensing of workers because the restrictions relate to
only part of the job. The intervention is transparent. However the
specification of tasks and occupations is time-consuming and quickly outdated
as occupational practice changes. There are enforcement problems, especially
where the service is only part of a broader service as it is difficult to know
when a person not licensed to do so, has carried out a restricted service.
(This has been found to be particularly the case where it is used to cover
some forms of treatment used by psychologists.)

Licensing workers in an occupation: This regime explicitly
prohibits all but licensed persons from offering certain services. Entry to
the occupation is dependent upon the worker meeting prescribed standards.
Entry qualifications normally involve education and some discretionary
criteria related to character or fitness to practice. (For example taxi
drivers are licensed following an examination on their knowledge of their area
and a police check to ensure that they are a "fit and proper person" to
operate a taxi.).

Licensing of workers is the least flexible form of
occupational regulation as those not meeting the entry requirements are unable
to practice. It minimises the risk to the public from unskilled practitioners
by requiring that all who practice have met particular standards on entry but
it does not usually deal directly with the continuing relevance of those
standards or the current competence of workers after they are licensed. (There
are some exceptions to this. For example, people licensed under the
Electricity Act are required to undertake refresher training on safety
procedures to maintain their knowledge in this area.).

As with
certification, a disciplinary process exists which may result in transgressors
having their licence suspended or removed.

Where the licensing is
primarily within the control of the occupational group the group has
incentives to increase the barriers to entry by raising the standards
required. This means that there is less competition to existing members of the
group and this enables higher prices to be charged.

Licensing reduces
public search costs but can reduce consumer choice as there are limits on the
range of practitioners able to provide a particular service and there is less
incentive on licensed practitioners to distinguish by differing levels of
quality and service. While there may be competition within the occupation, it
is restricted to competition for a limited and specific range of
services.

Which Form of Occupational Regulation Through
Statute is Most Appropriate in a Given Case?

Which type of regulation is most appropriate to a particular occupation
depends upon whether there is a problem if entry to that occupation is not
restricted, the nature of the problem, and the availability of other means to
solve the problem.

Because restricting entry to an occupation through licensing workers imposes
costs and reduces flexibility more than any other means of intervening in the
conduct of an occupation, it should be reserved for cases where the conduct of
an occupation could pose a significant risk of harm, self regulation by industry
will not work and other means of intervention by Government will not solve the
problem. There is, however, justification for using this method of occupational
regulation where the occupation has potential to cause significant harm and the
practitioner is a sole operator or works independent of supervision, for example
medical workers in the field, or taxi drivers. (Those working for an employer
have additional disciplines applied in the form of another person being
accountable for their actions and the employer is also able to provide quality
assurance and training, and monitor performance.)

Where regulation is justified and significant harm is not involved, the use
of certification with protection of title can be sufficient regulatory control.
This provides information to the public about the quality of service and the
qualifications of those using the protected title but it also enables those not
meeting the requirements to carry on the same business as long as they do not
mislead the public into thinking that they have the qualifications necessary to
use the protected title. This is the model used in the Institute of Chartered
Accountants Act 1996.

Questions for policy makers to ask in considering the appropriate type of
regulation are:

Will significant harm be caused to users of the services of an
occupational group (or third parties) if entry to the occupation is not
restricted?

What requirements are in place to protect the public from potential
harm from members of this occupation? (These may include placement of
liability on an employer in the Health and Safety in Employment Act or general
consumer protection legislation)

Would certification (title protection) be sufficient to regulate the
occupation?

Are there particular circumstances for the practice of a particular
occupation which require restricted entry to the occupation or the restriction
of particular tasks ?

Will the benefits of having a particular regulatory regime outweigh the
cost of the intervention?

Are there international regulatory requirements affecting the way this
occupation can be regulated?

Are there circumstances which would make intervention by government
rather than industry necessary or appropriate?

How Should Occupational Regulation by Government
be Designed and Implemented?

Regulation should be guided by the following general principles drawn from
the Code of Good Regulatory Practice approved by Cabinet in 1997. These are:

EFFECTIVENESS: Occupational regulation should be designed to minimise an
identified risk of significant harm to consumers or the public from market
failures, such as information asymmetries and externalities, in service
markets.

EFFICIENCY: Taking into account alternative approaches, the benefits of
occupational regulation to society (consumer and public protection) should
exceed the costs of occupational regulation to society (e.g. higher prices and
reduced competition).

EQUITY: Occupational regulation should be fair; it should treat individuals
in similar situations similarly and individuals in different situations
differently.

TRANSPARENCY: In formulating and administering occupational regulation, the
process should be transparent to both the decision-makers and those affected by
those decisions.

CLARITY: Occupational regulatory processes and requirements should be as
understandable and accessible as practicable.

INSTITUTIONAL: Occupational regulation should minimise the incentives for
regulatory bodies to provide occupational protection rather than public
protection.

An important additional point is that any regulation should be able to be
enforced effectively.

Specific Additional Features Needed in
Occupational Regulation Regimes

Agencies designing or reviewing regulation of an occupation should
incorporate the following features as far as possible:

For disclosure regimes:

the information required should be tailored specifically to the
potential problem posed by incompetent, reckless or corrupt practice of an
occupation.

For registration regimes:

absence of restrictive criteria such as restrictions on age and
ownership and residence (except where there is a demonstrable need);

criteria for refusing registration and means of review of decision are
explicitly stated.

For certification regimes:

separation of disciplinary functions from those to do with providing
services to members;

significant consumer participation in setting entry standards and
discipline;

clear statement of the certifying body's purpose and functions;

the certifying body should have responsibility for providing for the
ongoing competence of members of the occupation;

there should be provision for full disclosure of information on
processes and on decisions of the certifying and disciplinary bodies;

admission criteria should be based on relevant and objective data to
ensure fair and consistent treatment of applicants (e.g. criteria such as
age and residence are probably not appropriate and any judgements on a
person's suitability for an occupation need to have an objective basis); and

any regulation must operate in an impartial manner.

For licensing regimes:

separation of disciplinary functions from those to do with providing
services to members;

significant consumer participation in setting entry standards and
discipline;

clear statement of the governing body's purpose and functions;

the governing body should have responsibility for ongoing competence of
members of the occupation;

provision for flexibility e.g. detailed entry requirements should not be
set in legislation, nor matters of administration require Ministerial
approval;

disciplinary bodies should have fair and transparent processes and
access to the full range of sanctions including fining, suspending and
de-licensing transgressors;

admission criteria should be based on relevant and objective criteria to
ensure fair and consistent treatment of applicants;

separation of disciplinary functions from those to do with providing
services to members;

obligations, standards and sanctions should be designed in such a way
that they can be imposed impartially and consistently; and

there should be provision for full disclosure of information on
processes and on decisions of the licensing and disciplinary bodies
involved.

The need for regulation and the most effective regime for it, should be
periodically reviewed to ensure that the regime in place continues to meets its
intended objectives with minimal negative impact on competition and consumer
choice.

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