Audited self-regulation is defined as congressional or agency
delegation of power to a private self-regulatory organization to
implement and enforce laws or agency regulations with respect to the
regulated entities, with powers of independent action and review
retained .
..
An Official Website of the United States Government
Recommendation 94-1The Use of Audited Self-Regulation as a Regulatory Technique
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1 Such procedures generally provide for public participation and require all points of view to be taken into account and addressed. For example, rulemaking ordinarily should provide notice and opportunity for comment to all affected parties, and adjudications should be open to the public and include notice and hearing safeguards.
2 Audited self-regulation has been used in diverse programs, including quality of medical care under government insurance programs, stock exchange and commodities regulation and trading, agricultural marketing agreements, and certification of medical testing laboratories.
3 Note, for example, that Executive Order 12,866, Regulatory Planning and Review, 58 Fed. Reg. 51,735, 51,736 (October 4, 1993), states that, to the extent permitted by law, agencies should identify and assess alternative forms of regulation.
4 The Administrative Conference has repeatedly encouraged agencies to use alternative dispute resolution and negotiated rulemaking techniques in appropriate circumstances. The same factors supporting those recommendations suggest the value of informal and consensual processes in the context of self-regulatory organizations. See, e.g., Recommendations 82-4 and 86-3.
Audited self-regulation is
defined as congressional or agency delegation of power to a
private self-regulatory organization to implement and enforce laws or
agency regulations with respect to the regulated entities, with
powers of independent action and review retained by the agency.
This self-regulatory organization is often an association of
regulated entities formed for the explicit purpose of
self-regulation. Audited self-regulation is an alternative for
Congress to consider in legislating any regulatory program.
Properly implemented and monitored, a program of audited
self-regulation may effectively advance the statutory objectives
consistent with the public interest and the interests of the regulated
entities.
In certain circumstances, this
approach may result in better regulation because the agency’s
statute and rules are supplemented and enforced by those entities
directly involved in the regulated activity, which may have more
detailed knowledge of the operational or technical aspects of
that activity. The regulatory program also may be more effective
because it can be tailored to the individual industry or group. In
addition, the agency’s regulatory enforcement costs may be reduced
by this approach, although such cost reductions should be considered
only if they can be achieved without eroding the effectiveness of
enforcement.
On the other hand, audited
self-regulation may present the significant risks of uneven
enforcement, capture of the regulators by the regulated industry, and
creating barriers to entry or competition. Where the potential for
institutional self-interest is too great, self-regulation is
undesirable. Other risks can be lessened by requiring the
self-regulatory organization to establish and follow procedures
similar to those that would be applicable if the self-regulatory
organization were an agency.1
For these procedures to work, effective interest groups must exist,
and must have access to the agency, to raise concerns about the
conduct of the self-regulatory organization. And of course, the
agency itself must vigilantly oversee the activities of the
self-regulatory organization and of the regulated entities themselves.
A survey of agency experience with audited self-regulation2
reveals several common elements typically present in effective
programs: (1) Industry members are organized, expert, and motivated to
comply; (2) the regulatory program requires individualized
application of clear rules which can be objectively applied; and
(3) the agency itself has sufficient expertise to audit the
self-regulatory activity effectively. The survey also revealed that
audited self-regulation programs that were terminated or not
implemented lacked at least one of these elements.
In those cases where the
prerequisites and safeguards discussed above are present, Congress
and the agencies should consider audited self-regulation as a
regulatory technique.3
Recommendation
1. Congress and agencies
should consider audited self-regulation as a regulatory technique when
designing, revising, or reevaluating regulatory programs, but only
where it can be effective, as specified in Paragraph 2 below,
and only where it can operate fairly, as specified in Paragraph 3
below. Audited self-regulation is defined as congressional or
agency delegation of power to a private self-regulatory
organization to implement and enforce laws or agency regulations with
respect to the regulated entities, with powers of independent
action and review retained by the agency.
2. Effectiveness. Audited self-regulation can be effective if it meets the following requirements.
a. The substantive standards,
whether imposed by statute, regulation, or otherwise, are clearly
stated and are capable of objective application, even if
judgments must be made in applying them.
b. A self-regulatory
organization with the ability and incentive to implement these
substantive standards in cooperation with the agency exists or can be
created.
i. Ability.
The organization must have the expertise, experience, authority,
and commitment to design, implement, and evaluate effective
compliance measures. It must also, by itself or in combination
with other self-regulatory organizations, have jurisdiction over all
regulated entities.
ii. Incentive.
The organization must be motivated to undertake effective and
fair self-regulation consistent with the public interest, as that
interest has been articulated by Congress and the agency. This
motivation can be provided by, among other things: (A) the
members’ common incentives; (B) effective monitoring by groups
that may be harmed by noncompliance; (C) potential legal liability
of the self-regulated entities or the self-regulatory organization;
or (D) the potential for direct government regulation.
c. The agency responsible for
implementation and oversight must have the ability and incentive to
implement the substantive standards through a self-regulatory program.
i. Ability.
The agency must have (A) statutory authority, including at least
the powers specified in Paragraph 2(d) below; (B) sufficient
substantive expertise; (C) knowledge of organizational behavior and
internal control procedures of the self-regulatory organization and
its members; and (D) sufficient resources, including effective
auditing capability to monitor compliance.
ii. Incentive.
The agency must have the incentive to implement the
self-regulatory program effectively. Effective implementation
requires the commitment of the agency to achieving the
objectives of the statutory scheme through the self-regulatory program.
It also requires the agency to consider the rights and needs
of the intended beneficiaries of the regulatory program, who may be
harmed by noncompliance, as well as the rights and needs of the
regulated entities.
d. The self-regulatory program is expressly authorized by legislation that includes:
i. An explicit statement of the scope of permitted delegation to the self-regulatory organization;
ii. Authority for the
agency (A) independently to enforce the law, agency regulations,
and rules of the self-regulatory organization relevant to the
program; (B) to enforce the organic requirements of the
self-regulatory organization against the organization, and require
that the organization in turn enforce its own rules against its
members; (C) to review all rules and enforcement actions of the
self-regulatory organization relevant to the program; and (D) to
amend, repeal or supplement the rules of the self-regulatory
organization or require the self-regulatory organization to do so; and
iii. A requirement that the
agency, in promulgating its own rules or reviewing the rules of
the self-regulatory organization, examine the effects of those rules on
competition.
3. Fairness.
Audited self-regulation can operate fairly only if the
procedures of the self-regulatory organization ensure that the
decision maker is properly informed and unbiased. Procedures for
adjudication and for establishing rules of general applicability
should conform generally to those that would be followed if the
proceeding were conducted by the agency. In addition to the agency’s
plenary review authority referred to in Paragraph 2(d)(ii)(C), the
agency should provide parties with a right of appeal.
4. Access to records and proceedings of the self-regulatory organization.
Congress and the agency should provide public access to records of the
self-regulatory organization relating to the organization’s
regulatory activities, to the extent such records would be available
under the Freedom of Information Act if the self- regulatory
organization were an agency. Congress and the agency also should
consider whether to require any non-adjudicatory proceeding of the
organization to be open to the public.
5. Alternative dispute resolution.
The rules of the self-regulatory organization should provide for
use of informal and consensual procedures to resolve disputes
where appropriate.4
Citations:
59 FR 44701 (August 30, 1994)
__ FR _____ (2011)
1994-1995 ACUS 1
1 Such procedures generally provide for public participation and require all points of view to be taken into account and addressed. For example, rulemaking ordinarily should provide notice and opportunity for comment to all affected parties, and adjudications should be open to the public and include notice and hearing safeguards.
2 Audited self-regulation has been used in diverse programs, including quality of medical care under government insurance programs, stock exchange and commodities regulation and trading, agricultural marketing agreements, and certification of medical testing laboratories.
3 Note, for example, that Executive Order 12,866, Regulatory Planning and Review, 58 Fed. Reg. 51,735, 51,736 (October 4, 1993), states that, to the extent permitted by law, agencies should identify and assess alternative forms of regulation.
4 The Administrative Conference has repeatedly encouraged agencies to use alternative dispute resolution and negotiated rulemaking techniques in appropriate circumstances. The same factors supporting those recommendations suggest the value of informal and consensual processes in the context of self-regulatory organizations. See, e.g., Recommendations 82-4 and 86-3.
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