Chapter 5: Industry environment and market circumstances where self-regulation is likely to be most effective
The Taskforce is to inquire into and report on those industry environments and market circumstances where different types of self-regulation are likely to be most effective.
There is a general recognition that industry self-regulation is often more flexible and less costly for both business and consumers than direct government involvement.73 However, it is necessary to ensure that self-regulation is the appropriate form of intervention given particular industry environment and market circumstances, otherwise inappropriate intervention could create new problems.
There has already been some work done on the market preconditions for effective self-regulation. However, the Taskforce was keen to not only learn from other work that has analysed where self-regulation may be most effective, but also wanted rigorous analysis conducted to test hypotheses. The importance placed on a comprehensive and thorough analysis of market circumstances where industry self-regulation was likely to be most and least effective, became the catalyst for the Taskforce to engage a consultant.74 The Taskforce required the consultant to structure research around case studies where industry self-regulation had been implemented. The aim of this research was not to identify self-regulatory success and failure in particular industries but to more broadly identify the characteristics of the environment and market that have influenced the effectiveness of self-regulation.
This chapter draws out the Taskforce findings based on a review of existing information, the views of stakeholders collected through the consultation process, and advice from the consultant.
Nature and extent of market failure
7. Self-regulation is likely to be most effective where there are clearly defined problems but no high risk of serious or widespread harm to consumers.
8. An industry environment with an active industry association and/or industry cohesiveness is most likely to administer effective self-regulation as industry participants are more likely to commit financial resources, consult with stakeholders and monitor the effectiveness of self-regulation.
9. Self-regulation is less effective where there is a broad spread of smaller businesses that do not communicate with each other.
10. Self-regulation is more likely to be effective in a competitive market as industry participants are more likely to be committed to it, either to differentiate their products, or in fear of losing market share.
11. A more mature industry may be able to administer more effective self-regulation, as industry participants are more likely to have sufficient resources and be more committed while any `shakeout' of rogue traders will already have occurred.
Industry and consumer interests
12. Self-regulation is likely to be most effective where firms recognise that their future viability depends not only on their relationship with their current customers and shareholders, but also on the wider community.
13. The more incentives there are for industry participants to initiate and comply with self-regulation, then the more chance a scheme can remedy specific industry problems.
14. The extent to which industry participants are prepared to sign up to a self-regulatory scheme will affect the ability of that scheme to provide effective self-regulation. Where a scheme has a high level of consumer recognition, to the point where consumers will favour scheme participants when making purchasing decisions, then the scheme is most likely to be effective. This will create incentives for non-members to join the scheme.
15. The interests of all levels of industry should be considered in the development and maintenance of a self-regulatory scheme, and particularly the level of involvement of smaller businesses where appropriate.
16. Where there are cost advantages and/or increased flexibility in self-regulatory initiatives to address specific industry problems compared with government regulation or the court system, then there is a greater chance of improving market outcomes for both business and consumers, and minimising compliance costs for businesses.
There has already been some work done in identifying industry environments and market circumstances that are more likely to lead to effective self-regulation. In particular, a general guide to whether self-regulation is appropriate is the Commonwealth Office of Regulation Review's Regulatory Impact Statement checklist. The checklist states that self-regulation should be considered where:
- there is no strong public interest concern, in particular, no major public health and safety concern;
- the problem is a low risk event, of low impact/significance, in other words the consequences of self-regulation failing to resolve a specific problem are small; and
- the problem can be fixed by the market itself, in other words there is an incentive for individuals and groups to develop and comply with self-regulatory arrangements (e.g. for industry survival, or to gain a market advantage).
In addition, for self-regulatory industry schemes, the checklist determines success factors to include:
- presence of a viable industry association;
- adequate coverage of the industry by the industry association;
- cohesive industry with like minded/motivated participants committed to achieving the goals;
- voluntary participation - effective sanctions and incentives can be applied, with low scope for the benefits being shared with non-participants; and
- cost advantages from tailor-made solutions and less formal mechanisms such as access to quick complaints handling and redress mechanisms.75
During the inquiry, these observations were often reinforced and expanded upon. The following sections discuss these observations and other industry environments and market circumstances where self-regulation is more likely to be effective.
Clearly defined problems
and low risk of serious
or widespread harm to consumers
The Taskforce considers that self-regulation is most effective where there are clearly defined problems and low risk of serious or widespread harm to consumers. In other words, the consequences of self-regulation failing to resolve a specific problem would not seriously harm consumers. Where there are strong public interest concerns, such as major health and safety issues, and the specific problems are of high risk and/or high frequency then other forms of regulation may be more appropriate.
The Australian Food and Grocery Council commented that self-regulation is most suitable where there is no strong public interest, health or safety concern and the potential market failure would result in an event of low risk.76
Cable & Wireless Optus suggested that it is important to realise that the self-regulatory process cannot be used to resolve all competitive and public policy issues that arise within the industry. It submitted where there are significant competition issues or where the commercial interests of carriers with significant power are affected, self-regulation is relatively ineffective in driving policy change expeditiously. Therefore, Cable & Wireless Optus argued that there clearly remains a significant role for statutory bodies in regulating industries particularly those dominated by vertically integrated monopolies with significant market power.77 PowerTel also commented that there are elements of regulation that must be kept outside of self-regulation such as monopoly control.78
In the agriculture, fisheries and forestry industries, the Department of Agriculture, Forestry and Fisheries Australia recognised that there will be circumstances in which self-regulation may not be the most appropriate form of regulation. It commented that the expectations of Australian consumers and customers overseas will see some form of statutory regulation in relation to food safety and in the area of import and export inspection and the management of agricultural and veterinary chemicals for some time to come. 79
The Institution of Engineers commented that explicit regulation rather than self-regulation should regulate the engineering services that result in risk to the health, safety and welfare of the community. For the public, the risk of inadequate engineering depends on their exposure to engineering services. It submitted that every person's lifestyle is dependent on engineering via transport, communications, manufacturing and utilities. 80
Standards Australia commented that a risk based approach should be taken into account when deciding whether regulations should be put into place with the level of regulation being assessed against the potential harm resulting from non-compliance.81
Similarly, the consultant's report submitted that self-regulation will be more effective where the product supplied is not essential to the welfare of individuals. The consultant's report submitted that the effectiveness of self-regulation as a means of achieving such social welfare objectives depends on the extent to which firms have both the incentive and ability to achieve them. In general, the incentive for firms to self-regulate will be greater, the greater the extent to which those firms stand to benefit from those self-regulatory activities. 82
The Taskforce was interested to learn that self-regulation tends to be more effective in those markets where consumers and other individuals in the community who are adversely affected by market failure share a common interest in eliminating that market failure.83
The Taskforce considers that good practice in self-regulation involves applying an appropriate scheme to a specific problem or objective. Ascertaining which scheme should be applied will depend on the nature and risk of the problem and the consequences of no action. The Taskforce considers that self-regulation is most effective where there are clearly defined problems and a low risk of serious or widespread harm to consumers.
Active industry association
A major contributing factor to effective self-regulation is the strength of industry support. Evidence of industry support can be gauged by the existence of an industry association. The ability and willingness of industry to organise itself collectively demonstrates a capacity to undertake self-regulation. An active industry association is most likely to lead to industry participants meeting the schemes' objectives.
The Australian Food and Grocery Council argued that active, well resourced industry associations are critical to providing the organisational structures and processes necessary for effective management of voluntary codes including their development, monitoring and enforcement, and to ensure they provide net benefit and are not unduly restrictive of competition.84
The Victorian and Murray Valley Wine Grape Growers Council also agreed that a well-resourced industry association is more likely to provide effective self-regulation.85
Similarly, the consultant's report stated that the development of a strong industry association covering the majority of firms in a market can form a solid foundation for effective self-regulation.86
The Department of Industry Science and Resources also commented that a self-regulatory regime stands a greater chance of success if it is backed by a large and well structured industry association in a market with few industry participants. Primarily, this assists in regards to the costs associated with establishing and maintaining regimes; ensuring broad participation; and issues of enforcement, including penalties and sanctions. It noted that where no large industry association exists, costs would appear to be a prohibiting factor in developing and administering a regime. 87
Australian Business Limited commented that where self-regulation operates within the context of general law such as the Trade Practices Act and the Fair Trading Acts, then it can add detail and industry-specific guidance to help market participants comply with the law and achieve competitive conduct. It commented that for this outcome to occur, strong general law is required accompanied by a group of market participants, usually organised around an industry body, who share a desire to set some standards of conduct to guide participants and help adjudicate or resolve disputes.88
Insurance Enquiries and Complaints Limited submitted that its scheme and the General Insurance Code are effective because of the Australia wide commitment from the industry and the Insurance Council of Australia. It submitted that all industry members selling personal lines insurance are involved, as are consumers, policyholders, consumer groups, Federal Government and the Insurance Council. There is a high level of industry `ownership' of the code and the scheme, in other words a high level of participation in the setting up, funding and ongoing development of them. 89
On the other hand, the Department of Health and Aged Care commented that a challenge for self-regulatory schemes is where there is a lack of effective industry associations or where industry associations misrepresent industry members, or where there is limited commitment to a Code within the industry.90
Similarly, in its regional consultations, the Taskforce heard that self-regulation is not conducive to small industries because the industry association does not have the money to promote the scheme.91 However, the Taskforce notes that the type of self-regulatory scheme will depend on what is trying to be achieved and it should be the one that effectively solves the identified problem and minimises costs for industry.
Micro Business Network commented that those businesses in the micro business sector (including home-based businesses) that are not part of an industry association would find it difficult to regulate because they have few resources and work long hours with often very little capital. It commented that microbusinesses operate in every industry but are difficult to target. 92
ASIC also noted that the need for a strong industry association may be reduced when the self-regulatory scheme has a `functional' focus rather than institutional coverage. For example, a code of conduct that covers similar products or services regardless of the institutions that offer such products may provide a more commercial basis for membership than that which derives from a common industry perspective. That is, the common interest and commitment may be driven by a desire to meet appropriate market standards rather than the desire to meet the industry association's requirements. 93
The ability and willingness of industry to organise itself collectively demonstrates a capacity to undertake self-regulation. An active industry association and/or industry commitment is most likely to lead to industry participants meeting the schemes' objectives.
An industry environment where there is a cohesive industry with industry participants committed to achieving their goals is most likely to administer effective self-regulation.
The Department of Health and Aged Care commented that a challenge for self-regulation is where there is diversity within the industry (such as the private health sector) and industry members have diverging rather than converging interests. The Department was conscious, however, that this may be addressed through structured and cooperative education strategies. 94
The Association of Superannuation Funds Australia commented that in order for effective self-regulation it is important to have relatively homogeneous objectives and cultures within the industry to reach consensus.95 Similarly, the Institution of Engineers commented that self-regulation requires extensive community and business education, and requires a commitment from all industry players to work effectively.96
The Investment and Financial Services Association commented that industry based complaints schemes rely heavily on the commitment of industry for their success in resolving consumer complaints and building consumer confidence. A sense of `ownership' on the part of industry participants is essential to maintenance of this commitment and to retention by schemes of their self-regulatory character and effectiveness. 97
Competitive markets may be more conducive to more effective self-regulation. In a more competitive market, participants are most likely to be committed to it to differentiate their products, or in fear of losing market share.
For example, the NRMA commented that the combination of self-regulation and competitive market forces creates a strong incentive for companies to comply with, and in many cases exceed, the levels of customer service and other conditions that are specified in self-regulatory codes of practice. Non-compliance with the codes by a particular company could see it lose market share to competitors. 98
NRMA commented that the main markets that it operates in, namely general insurance and financial services, are characterised by intense competition between a significant number of industry participants, and this creates a strong incentive for companies to use adherence to codes as a marketing tool. It submitted that competition is also becoming more intense as new distribution channels such as e-commerce emerge.99
Similarly, ASIC commented that self-regulation is more likely to be effective in a competitive market, as it will lessen the risk of such regulation becoming an anti-competitive structure.100 However, as noted above, this may also mean that the achievement of industry common interest can be more difficult.
The consultant's report also commented that self-regulation tends to be more effective in those markets where there are relatively large numbers of competitive firms producing relatively homogeneous products. In such markets, firms can reap significant economies of scale by grouping together to self-regulate the activities of those firms within that group that impose costs on consumers, other firms within that group and the wider community. In addition, because of the homogeneous nature of the product there is a much greater probability that the external costs generated by one firm will adversely affect the sales of other firms producing those goods. 101
On the other hand, the Australian Consumers' Association considered that self-regulation works well when there is a small number of large players (such as banking or insurance) as opposed to a large number of small players (financial planners).102
Similarly, during Taskforce consultations some industry associations commented that fewer people or strong leadership makes it easier to self-regulate as industries can get the level of detail they desire rather than having generic codes.103
The consultant's report noted that self-regulation is less likely to be effective in those markets that are dominated by a very small number of firms due to the existence of large economies of scale in production. In these markets, the firms are more likely to share a common interest in using self-regulation as a means of reducing, rather than increasing, the amount of competition between firms. In fact, in such cases, the ACCC is likely to consider such self-regulation to be anti-competitive. 104
The Taskforce considers that self-regulation in a competitive market with homogeneous products is most likely to produce effective self-regulation.
Maturity in the market may be another factor underpinning the effectiveness of self-regulation. The Taskforce considers that a more mature industry with established players may be more willing and able to participate in self-regulation.
For example, the Australian Consumers' Association commented that voluntary self-regulation can have little effect where there are `cowboys' who are not prepared to participate. It argued that in the telecommunications industry, there are some companies who participate in self-regulation and an increasing number of smaller players who do not. Again, it is a comparatively recently deregulated market. It argued that consumers using these companies have limited access to redress and do not enjoy adequate consumer protection. 105
However, the Taskforce recognises that it depends on what self-regulation is trying to achieve. For example, a new industry may develop a self-regulatory scheme to develop consumer confidence.
Generally, a more mature industry with established players may be more willing and able to participate in self-regulation.
Wider community awareness
Self-regulation is likely to be most effective where firms recognise that their future viability depends not only on their relationship with their current customers and shareholders, but also on the wider community.
The consultant's report submitted that many medium to larger firms now recognise that their longer term profitability and viability, and their potential to attract new customers and investors, does not depend solely on how they are viewed by their current customers and shareholders. It also depends on how their activities are viewed by the wider community and the government, who may have a significant influence on their future sales, sources of funds, profitability and the regulatory environment. As a result, those firms are investing considerable amounts of time and money in developing their reputations as socially responsible corporations. Introducing self-regulation can be an important factor in improving their corporate image. 106
The report observed that some self-regulatory codes not only try to improve market efficiency, but also seek to achieve a number of social welfare objectives. For example, the accountants' Code of Professional Conduct not only requires that members must safeguard the interests of their clients and employers, but also that they must not be in conflict with duties owed to the community and its laws.107 The Taskforce recognises that the failure of firms to act in a manner consistent with society's broad social objectives can have a damaging effect on their overall reputation and profitability, and that this provides a real incentive to implement effective self-regulation.
Incentives to make self-regulation effective
For industry self-regulation to be effective, there needs to be some vested interests or incentives to make it so. In other words, generally self-regulation needs to be in the self-interest of industry to not only occur, but also to be effective. The more incentives for businesses to make self-regulation work, then the more chance that self-regulation will be effective in achieving improved market outcomes for consumers.
The Australian Food and Grocery Council commented that the strongest incentive for industry to ensure that self-regulation is effective is the imperative of the industry as a whole and individual companies, to protect their reputations in the marketplace. It submitted that once a self-regulatory measure is established, and promoted by the industry as a commitment to a set of values and a desire to meet the needs of consumers, individual companies and the industry as a whole will strive to meet the benchmarks it has set.108
The Consumers' Telecommunications Network commented that self-regulation will work when there is a substantial identity of interests with common benefit between carriers and an equal bargaining power of parties. It gave the example of `end to end' network performance (quality of phone call of both ends will be the same) working well because everyone has a common benefit. 109
During the Taskforce consultations, the Financial Services Consumer Policy Centre commented that there were three reasons why industries self-regulate, namely:
1. threat of government regulation;
2. promotional opportunity; and/or
3. a means for product differentiation. 110
The Australian Consumers' Association was of a similar mind, submitting that there may be a `carrot', such as the opportunity to differentiate a company by adhering to a code (especially if there are `cowboys' in the market), or a `stick' (such as industry, media or consumer pressure). 111
ASIC was of the view that common interest will usually involve a mix of `positive' and `negative' incentives. An example of positive common interest is a desire to improve professionalism in the industry. ASIC argued that improving consumer confidence can have both positive and negative elements. Most self-regulatory schemes also seek to improve consumer confidence where it is currently inadequate such as in areas of new technology or where there have been problematic industry practices. 112
ASIC also submitted that negative self-interest can include the desire to avoid government, which may be an explicit `threat' via direct government pressure or an implicit `threat' arising out of the general direction of government policy reforms. At its best, this involves a genuine commitment to self-regulation that will deliver market improvements in a cost-effective manner. ASIC noted that, in the past, comprehensive self-regulatory schemes have generally been developed only where there has been a real threat of government or regulator intervention.113
The consultant's report noted that `external' costs and benefits may not be taken into account by firms and consumers when determining how much they should produce and consume. The effectiveness of self-regulation depends on the extent to which firms have the incentive and the ability to `avoid' external costs or `internalise' external benefits and costs. 114
Where there is no or little common interest, then it is harder to make self-regulation work. For example, PowerTel commented that one element that must be kept outside self-regulation is where significant conflicts of interest are likely to result from the self-regulatory process.115
During Taskforce consultations, it was evident that telecommunication codes that deal with commercial interest are being developed a lot faster than consumer codes, because of the self-interest by carriers.
The Service Providers Industry Association (SPAN) commented that instances abound where the rate of progress on important regulatory/self-regulatory initiatives has fallen well below industry aspirations and expectations. Examples demonstrate that a self-regulatory model is ill suited to any situation where there are conflicting commercial interests to be reconciled and particularly where the bargaining power and information available to the parties are unbalanced. 116
SPAN commented that reasons for delay include the natural tendency of engineering and legal/regulatory people, who make up the self-regulatory workforce, to want to tease out all elements of technical complexity and risk in the process of code formulation. This attitude is understandable, but is tempered in normal business conduct by the imperative of targets and deadlines set by executive management to achieve goals such as time-to-market advantage over competition. That discipline is either absent or given insufficient weight within the self-regulatory framework. SPAN noted that a further reason for delay often quoted is the attitude of incumbent operators whose commercial interests are to perpetuate the status quo as long as possible.117
The Consumer's Telecommunications Network was concerned that, often, quality of service and profitability do not go hand-in-hand.118During regional consultations, the Taskforce also heard that business-to-business industry self-regulation is difficult to introduce when there is a power imbalance between producers and buyers.119
The consultant's report also noted that self-regulation is likely to be less effective in markets where firms, consumers and the wider community do not share a common interest in reducing the market failure.120
For industry self-regulation to be effective, then there needs to be incentives to make it work. The more cohesive an industry is with incentives to make self-regulation work, then the more chance that self-regulation will be effective and meet its objectives.
The existence of market incentives to comply with self-regulatory schemes are most likely to increase the effectiveness of self-regulation. An industry environment where self-regulation may be most effective is where there is voluntary participation with effective sanctions and incentives to ensure that there is little scope for non-participants in the scheme to enjoy the benefits.
For example, the Department of Industry, Science and Resources commented that voluntary participation-backed by strong incentives to participate-appears to provide a stronger framework and higher degree of success, independent of the size of the industry association. Whereas, it commented that mandatory participation and subsequent issues of compliance, enforcement, penalties and/or sanctions appear to depend primarily on the size and strength of the industry association. 121
The Institution of Engineers also commented that effective self-regulation requires not only standards or codes of practice, but also effective mechanisms for dealing with complaints with these codes.122
The Association of Superannuation Funds Australia commented that for self-regulation to be effective industry requires effective enforcement and sanctions, for example the standards need to be well known and/or branded. If an industry member fails to meet these standards then some sanction is required (e.g. fine, `shaming' or corrective advertising restrictions on licence to operate). It argued that such enforcement also requires/assumes that effective complaint procedures are easily accessible for consumers. 123
During the consultations, one organisation commented that public shaming is like being `dumped into custard - it is a soft landing, but it sticks'.124
Similarly, NRMA commented that self-regulation also functions effectively in industries where brand name image and customer loyalty are important determinants of market share and profitability. Any damage to brand reputation through non-compliance with a code of practice could be very costly to restore. 125
On the other hand, the Motor Trades Association of Australia commented that industry self-regulation has not been effective in relation to Franchising and Oilcode because sanctions are ineffective because offending parties can simply `drop out' of the scheme and continue the offending behaviour. It argued that if there is no penalty or detriment for non-participation, then many will question why they should join. 126
The Australian Consumer's Association argued that there is need for government underpinning of self-regulation. It considered that the involvement of ASIC in approving codes and dispute schemes, as part of the new regulatory framework for the financial sector being introduced as part of the Corporate Law Economic Reform Program, will ensure that self-regulation `best practice' principles become legislative requirements. 127
The existence of market incentives and effective sanctions is most likely to increase the effectiveness of self-regulation, where participants will comply more with schemes, which it turn, can improve market outcomes for consumers.
An important element of self-regulation is coverage. The extent to which industry participants are prepared to sign up to a self-regulatory scheme will affect their ability to provide effective self-regulation. Where a scheme has a high level of consumer recognition, to the point where consumers will favour that scheme, then the scheme is most likely to be effective. There then may be market pressures for other industry participants to join the scheme.
A significant number of organisations commented that wide coverage was an important element of good practice. For example, the Financial Industry Complaints Service considered that self-regulation only works where the whole segment of a particular industry is covered by one scheme and rules are uniform.128 Similarly, the Association of Superannuation Funds Australia commented that for self-regulation to be effective, then it is necessary to have close to 100 per cent coverage of industry participants.129
The Telecommunications Industry Ombudsman stated that its success has been due to its ability to maintain an appropriate level of consumer protection in a rapidly changing competitive environment, with more than substantial coverage of the telecommunications industry. A measure of the extent of this coverage is evident by the increase in membership from three members at its inception to over 900 members at the date of its submission. 130
Further, ASIC commented that wide industry coverage may be easier to achieve in an industry with fewer and larger organisations as the problem of `free riders' is less apparent. It stated that free rider problems can be of two broad types:
- Industry members may choose not to join the self-regulatory scheme at all. This can be a particular problem in those industries characterised by a large number of firms including many smaller firms or individual practitioners; and
- Industry members may join the self-regulatory scheme, but choose not to properly adhere to the agreed rules.
ASIC argued that in both cases the free riding firm may gain competitive advantages by enjoying the public benefits of self-regulation while not bearing its costs. 131
The consultant's report also submitted that self-regulation is more likely to be effective where there is limited scope for adversely affected individuals and firms to `free ride' on the benefits of self-regulation.132
The Office of Small Business commented that a contributing factor to the success of self-regulation is the extent to which all levels of an industry participate in its development and maintenance. It asserted that it is generally accepted that smaller businesses may face proportionally higher costs, both in terms of time and resources, when seeking to provide input into regulatory regimes. It argued that this can lead to a lack of smaller business participation in and ownership of self-regulation, and a consequent lack of commitment by such businesses to the success of a scheme. Hence, the Office of Small Business commented that is important to ensure that smaller businesses are adequately represented in the development and administration of self-regulation.133
The Office of Small Business submitted that the manner in which smaller businesses may be accommodated will vary with each particular circumstance. It commented that an industry association may actively seek the input of all industry levels, alternatively it may be necessary for bodies set up to administer a self-regulatory regime to consult with smaller businesses. The Office of Small Business also commented that it is possible the development and administration of self-regulation will by itself adequately involve all levels of industry.134
The effectiveness of any self-regulatory scheme will only be as good as the extent of its coverage. The extent to which industry participants are prepared to sign up to a self-regulatory scheme will affect the ability of them to provide effective self-regulation.
An industry environment where there are cost advantages and/or increased flexibility in developing and maintaining self-regulation compared with government regulation or the court system can underpin more effective self-regulation. Cost advantages, for both business and consumers, could include less formal mechanisms such as quick complaints handling and redress mechanisms.
The Federation of Australian Radio Broadcasters stated that self-regulation is usually faster and less expensive as well as more flexible and up-to-date than government regulation because industry has a better understanding of the problems and what their realistic solutions are.135
Similarly with court costs, a number of organisations commented that self-regulation is quicker and cheaper. For example, the Financial Industry Complaints Service Limited stated that it is a fact that dispute schemes provide a cheaper service than the courts and hopefully greater consumer retention for the industry involved.136
Echoing these comments, the Investment and Financial Services Association stated that in the Australian financial services sector, dispute resolution schemes have evolved as cost-effective alternatives to litigation. They have reduced pressure for government intervention in the industry, especially where such schemes have entailed complete market coverage. 137
The Insurance Council of Australia commented that its self-regulatory initiatives have worked effectively because of the absence of any overlay of legalism or formality (such as an appeals process) which makes the Scheme accessible and attractive to consumers.138
NRMA commented that an environment where an industry's products and distribution channels are undergoing continual change is also better suited to self-regulation rather than formal government regulation. This reflects the fact that self-regulation will generally be more flexible and adaptable to changing circumstances such as new technology and new products. The NRMA submitted that financial services is an example of an industry that is undergoing rapid and continuous change. 139
Where there are cost advantages and/or increased flexibility in developing and maintaining self-regulation more effective self-regulation may be achieved.
In the course of the inquiry, it was suggested to the Taskforce that it should draw conclusions about where self-regulation is likely to succeed and where self-regulation has a poor prognosis and `black letter law' should be the preferred option.140
However, the Taskforce ultimately concluded that the analysis of whether self-regulation is appropriate must be on a case by case basis. In some circumstances, the way in which a self-regulatory scheme is designed and implemented may overcome inherent handicaps in industry structure or market circumstances.
Nonetheless, the Taskforce believes that the findings of its report should be incorporated into existing guidelines for industry and policymakers.
The Taskforce encourages the government, in addition to existing guidelines and benchmarks, to provide industries with practical guidelines based on the principles flagged in this report to help inform/assist the development and review of self-regulatory schemes.
The Taskforce also encourages the government to consider up-dating its guidelines for policy makers involved in assessing options on the industry environment and market circumstances that are most likely to lead to effective self-regulation, based on the findings in this report.
74 Tasman Asia Pacific 2000, Analysis of market circumstances where industry self-regulation is likely to be most and least effective. Its report can be located at the Taskforce webpage at http://www.treasury.gov.au/self-regtaskforce.
75 Office of Regulation Review 1998, A Guide to Regulation, 2nd edition. This publication is available from the following website: www.pc.gov.au/orr/.
140 For example, Mr Randal Dennings, Clayton Utz, proposed that the Taskforce produce `a matrix of factors for use as a guide by parliaments and industry bodies so as to isolate the desirable regulatory response geared to the governmental outcomes required' (Submission of 18 July 2000).