Merging of ex ante and ex post functions in a “super-regulator”: Pros and Cons
FSR Topic of the Month
Competing Architectures for Regulatory and Competition Law Governance
by Caio Mario da Silva Pereira Neto and Peter Alexiadis
#3 Merging of ex ante and ex post functions: variations in institutional design – Pros and Cons
Commentators have identified a number of positive factors which support the view that exmante and ex post powers should be combined, including:
- limits on the ability of a firm to engage in regulatory “forum shopping” by having its issues adjudicated by the forum most likely to judge its case favourably;
- the lowering of costs for the government, and hence the taxpayer, which include “bureaucratic transaction costs” related to the “complexity of inter-institutional operating routines” required by the process of cooperation among different agencies;
- the use of sector-specific expertise can be harnessed by the ex post regulator to arrive at better informed results;
- avoiding unnecessary rivalry between agencies as to which is best placed to deal with any particular issue, and prevents unnecessary competition for the public purse, especially when prompted by populist sentiments; and
- minimizing the risk of conflicting decisions between different agencies and the resulting legal uncertainty that this produces.
By contrast, some commentators have also identified the positive factors that can be associated with the maintenance of supervisory bodies that would otherwise be lost if regulatory and competition powers converged into the same institutional hands, including:
- By combining all powers in a single Authority, that institution has the power to choose its easiest instrument through which to pursue intervention, rather than that which is most appropriate. This would arguably lead to an inherent tendency to promote more onerous ex ante interventions and remedies, instead of the better targeting of these regulations and their eventual replacement by ex post controls (which is what should in theory occur if markets are operating effectively).
- It is harder in principle for a market operator to “capture” multiple institutions, including an agency (i.e., the NCA) with broad cross-sectoral powers and no deeper responsibility for any specific industry, as opposed to a single large institution that will have more identity with the deeply regulated industries under its mandate (although the counter-argument is that it may be harder to capture one very large and integrated, financially secure entity which has multiple sectoral agendas running in parallel).
- There is a risk of certain ‘Cinderella’ sectors being created because the intervention is limited across all sectors, which means that over-stretched regulators (particularly in smaller jurisdictions) have to identify specific sectoral targets that need to be prioritised at the expense of others.
- Competition between regulators allows for greater transparency and a better flow of ideas, so that errors in public policy-making can be identified more easily and be more likely to be corrected.
- Issues regarding the scope of powers of search and seizure, the confidentiality of submitted information and the legitimate use of company data can create enforcement problems, as each jurisdiction does not necessarily adopt the same approach to such matters across both its NCA and NRA.
- Separate institutional structures allow for specialization, thereby benefiting from sectoral expertise within the respective NRAs and from more general cross-sectoral welfare-enhancing policies practised by NCAs.
The intensity of the pros and cons identified above may vary in different institutional environments. Indeed, institutions are not created in a political or institutional void, as they are heavily dependent on the socioeconomic context in which they operate, the history of regulation and the human and material resources available in each jurisdiction.