Who Let the Dogs Out?! Regulators baring their teeth and chasing down duty holders

WHO SHOULD READ THIS

• Those who work in highly regulated industries, government regulators and executives.

WHAT YOU NEED TO KNOW

• Regulation in Australia is changing, as regulators face increasing pressure to prosecute more and avoid the perception of being ‘too close’ to those they regulate.

The context

Australia operates in a highly regulated environment. Our regulators are vast and varied, from the well known (ASIC, ACCC, WHS regulators, the EPA and the FWO) to the less well known (Wine Australia, ‘the wine industry regulator’).  As Australians, when death or injury, environmental damage or financial loss is sustained, we ask ‘who is regulating this?’ and ‘why aren’t they being tougher?’.

Each regulator has its own unique approach to compliance and enforcement guided by legislation and, at times, political drivers.  Cooperative compliance, partnering with duty holders and voluntary reporting have featured in the enforcement regimes of most Australian regulators from time to time.

However, we are now seeing high profile criticism of this ‘soft’ behaviour of regulators (think: the Banking Royal Commission) and a 24-hour news cycle constantly sharing news of poor corporate conduct. Now, more than ever, there is little incentive for a regulator to adopt a cooperative regulatory model. Instead a ‘new norm’ is emerging, where regulators are expected to be the ‘tough cop on the beat’.

Not only are regulators expected to hold corporate duty holders to account, they are also under increased pressure to ‘pierce the corporate veil’ and hold individuals personally responsible for their acts and omissions.

Although the threat of regulatory action has now increased, there are pro-active steps that a duty holder can take to adapt to this ‘new norm’.

Maintain a respectful tension

Regulation can, at times, be adversarial. Litigation is the pinnacle of this – with regulators focussing on a specific breach, and duty holders being frustrated by regulators not understanding the bigger picture.

Maintaining a good working relationship between regulators and duty holders is vital.

Key considerations to facilitate this include:

• Implementing an Escalation Framework: Interactions with regulators can occur frequently. Regulators and duty holders should have a process that determines when interactions (e.g. the request for and provision of documents) can occur freely and voluntarily and, conversely, in what circumstances both parties should adopt formal processes. Such a model needs to be flexible, and reflect both the nature of potential breaches and the history of the relationship between regulator and duty holder;
• Keeping it Consistent: Touch points between duty holders and regulators can occur at all levels, from between front line inspectors and operational staff, to direct dealings between a chief executive and the head of a regulatory agency. A consistent message is important. If front line staff are adversarial, and executives are cooperative, the relationship is at risk. Identifying key personnel, such as a specialist regulator relations touch point can facilitate the maintenance of a consistent position; and
• Maintaining Professionalism: Perceptions about influence and ‘industry capture’ can hurt both sides. Avoiding conflicts, and potential conflicts of interests, is vital. Attending industry workshops will generally be fine but be wary of co‑attendance at social or sporting events.

Following a potential breach, prepare for the worst

A significant incident of any nature (from a workplace death to a serious data breach) can result in intense and ongoing interactions between duty holder and regulator. Within the first hours and days after an incident, vital admissions, concessions and mistakes can occur if you are not prepared.

Knee‑jerk decisions made in the immediate aftermath of an incident can haunt duty holders in court proceedings years later.  While there can be a temptation to voluntarily disclose information during this period, it is important to be prepared for the worst, so that staff are armed with responses that will ultimately protect a duty holder if the unthinkable occurs.  Response protocols should be in place before an incident occurs.

Recognise that political solutions may not exist

The era of backroom deals and ministerial intervention is (almost) over. Anti-corruption watchdogs (woof) continue to stamp out corrupt deals. However, political solutions, even when entirely above board, are declining. Disputes between government entities do occur. Many governments have strict policies to avoid or limit intra-government litigation, however, at the same time regulators are gaining more and more independence and reporting to independent boards. This means that using the back channels to resolve breakdowns in regulatory relations is becoming more difficult, reinforcing the need for a pro‑active regulatory response plan.

Being proactive in planning for regulatory action, including by training staff and through the implementation of procedures and response plans, will be essential to minimising the risk of a bite in Australia’s new regulatory era.

For further information on any of the issues raised in this alert please contact:

This publication covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. It is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.