Discussion Paper Summary

April 1997

Market Self-Regulation and Codes of Practice

Few areas of law or regulation affect average individuals as directly or profoundly as the law that applies when they participate as consumers in the market. Consumers of complex goods and services are exposed on a daily basis to issues of fair trading, product safety, product quality, service performance, and disputes resolution.

To promote a fair and informed marketplace for business and consumers market behaviour is often regulated. Regulation is the process of making rules which govern behaviour. The regulatory process realistically can happen in three different ways:

1. Government regulation occurs when the Government makes the rules.
2. Co-regulation occurs when the rules that govern market behaviour are developed, administered and enforced by a combination of government agencies and people whose behaviour is to be governed.
3. Self-regulation occurs when the rules that govern market behaviour are developed, administered and enforced by the people whose behaviour is to be governed. Appendix 1 describes various types of self-regulatory instruments currently in use in New Zealand.

Where any particular form of regulation falls on this spectrum depends on who gives impetus to its development. In New Zealand, regulation having general and universal application is generated by Government in the form of statutes and statutory regulations. Most other regulation is generated by specific industry groups, sometimes exclusively, sometimes with input from government and other agencies, so it is convenient and logical to consider co-regulatory mechanisms as a form of self-regulation.

Self-regulation may be defined as the implementation of Codes of Practice (or conduct) embodying mutual obligations by competing players in a market. With self-regulation the extent to which the people who are bound by the rules also control those rules can vary widely. At one extreme the rules can be controlled exclusively by the people to be bound and at the other the rules can be influenced and sanctioned by a number of outsiders, including consumers and government agencies.

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