Discussion Paper

July 2005

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Introduction

• Outline of This Paper

A review of the role of the Ministry of Consumer Affairs,[1] which examined the role and scope of consumer policy and identified key strategic issues that may influence or impact on the outcomes of the Ministry in the next five to ten years, was completed in May 2003. The review recommended that the Ministry initiate a first-principles review of self-regulation and the Ministry's involvement in it.

A further recommendation was that self-regulation should be considered as part of a review of the mix of approaches to redress and enforcement that will best contribute to the Ministry's outcome of consumers transacting with confidence.

The purpose of this review is to assist industry, consumers and government in developing, operating and evaluating industry-led regulatory schemes, such as voluntary codes of conduct and consumer dispute resolution schemes.

This review will consider whether industry-led schemes are effective in promoting an environment in which consumers transact with confidence, and to clarify the circumstances in which such schemes work best.

This review builds on previous work undertaken by the Ministry on self-regulation (including the Ministry's publication Codes of Practice - Guidelines for Developing a Code of Practice), as well as examining other material from New Zealand and overseas.

The key issues to be addressed in the review are:

1. Assessing current trends in regulatory practice in New Zealand and overseas - how do industry-led schemes fit within the overall regulatory environment?
2. How effective are industry-led schemes in creating an environment in which consumers transact with confidence:
   1. What is an appropriate evaluation framework to assist industries, consumers and government in assessing whether schemes are effective in practice?
   2. Applying the evaluation framework in a case study analysis of selected schemes to determine whether the schemes are successful in creating an environment in which consumers can transact with confidence
   3. From the case studies, developing a set of best practice principles. These principles will cover issues such as the circumstances in which industry-led regulation is likely to be most effective.
   4. Are there gaps in the coverage of schemes?
3. To what extent should the government be involved in self-regulation?

Outline of This Paper

The purpose of this paper is to provide the background context to the review, to outline the industry circumstances which have been identified overseas as being indicative of effective industry-led regulation, and to develop a framework for evaluating industry-led regulatory schemes. The paper begins by considering the importance of an effective and efficient regulatory environment in achieving the Ministry's goals of promoting economic development and creating confident consumers.

It then goes on to describe a model of the regulatory environment which incorporates the different forms of regulatory instruments, including alternative and complementary schemes, and the interaction of these instruments.

Part 2 considers the linkages between an effective regulatory environment and confident consumers and develops them into a draft framework for evaluating industry-led regulation. The draft evaluation framework will form the basis of a number of case studies of schemes currently operating in New Zealand. The case studies will not be seeking to "tick" or "cross" whether a scheme is successful or not, but will lead to a more general identification of the features which are present in successful schemes. This will lead to the development of best practice principles for developing and operating a scheme.

A subsequent paper, to be released later in 2005, will examine the appropriate role for government in participating in industry-led regulation. It will consider various models adopted by governments overseas, and whether one of these models, or a hybrid, is appropriate for New Zealand.

In addition to this review of self-regulation, the Ministry has also launched a review of the enforcement of consumer protection law.

[1] Ministry of Consumer Affairs, Creating Confident Consumers: The Role of the Ministry of Consumer Affairs in a Dynamic Modern Economy, May 2003.

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