A regulator’s primary remit is to ensure compliance with the regulatory framework which it oversees. Accordingly, compliance and enforcement activity forms the backbone of all regulators’ operations. Such activity includes the spectrum of actions taken by a regulator to monitor, encourage and, where appropriate, compel compliance with the regulatory framework.

Typically, the resources available to a regulator to ensure compliance with the regulatory framework will be limited. To maximise compliance while making the best use of available resources, compliance and enforcement activity should be strategically targeted and prioritised. A risk-based approach helps to achieve this[1]. In addition, continuous monitoring of the performance of compliance and enforcement activity, coupled with measures to implement changes to that activity based on assessment results, will help to enhance performance of a regulator’s compliance and enforcement activity in terms of effectiveness, efficiency and accountability.

Apart from the clear benefits of monitoring the performance of compliance and enforcement activity, many Commonwealth[2] and State regulators[3] are required to undertake performance monitoring of their compliance and enforcement activities. These requirements are partially linked to growing pressure on governments to demonstrate and improve the results of their activities. This article outlines the main elements of an ideal performance monitoring framework, as well as some practical guidance on how a plan can be tailored for a particular regulatory framework.

What does performance monitoring of compliance and enforcement activity involve?

In a nutshell, performance monitoring is the process of:

  • Performance indicators: identifying and developing indicators whose values can be systematically tracked to assess progress made in achieving pre-determined goals.
  • Assessment of performance: using the performance indicators to assess progress against those goals.
  • Enhancement of performance: using the results of the performance assessment to enhance decisions and actions in the future.

In the context of compliance and enforcement activity undertaken by a regulator, performance monitoring helps to determine whether such activity is actually working – that is, compliance with the relevant regulatory framework is maximised in an effective and efficient way.

Main elements of an ideal performance monitoring framework

The main elements of an ideal performance monitoring framework for compliance and enforcement activity are outlined below:

  • Compliance objectives: compliance objectives form the core of the performance monitoring framework. These differ depending upon the purpose and function of the applicable regulatory framework, as well as the types of compliance and enforcement activity undertaken by the regulator. For example, if the regulatory framework includes a licensing regime, a compliance objective might be to ensure the efficiency of the licensing process by minimising the time spent by the regulator on processing licensing applications, while at the same time ensuring risk of non-compliance by a prospective licensee is effectively mitigated through the licensing process.
  • Inputs, outputs and outcomes: the compliance objectives will have implications for the inputs, outputs and outcomes of a regulator’s compliance and enforcement activity.
    • Inputs include money and time spent, staff allocated, materials and equipment used to undertake regulatory activity. The use of inputs to measure and enhance performance can help to ensure the efficiency of a regulator’s compliance and enforcement activity.
    • Outputs are the tangible ways a regulator interfaces with regulated entities, for example, through its proactive compliance and enforcement activity (conducting seminars and providing educational material on its website), as well as its reactive compliance and enforcement activity (the way it responds to complaints about regulated entities and the frequency of prosecution proceedings undertaken by the regulator). Outputs can provide an indication of the effort dedicated by a regulator towards various types of compliance and enforcement activity.
    • Outcomes reflect the results of the regulator’s compliance and enforcement activity, such as obvious changes in compliance behaviour within the regulated sector (including the level of attendance of regulated entities at educational seminars or the number of instances of non-compliance detected through compliance monitoring and auditing).
  • Performance indicators and measurement: the inputs, outputs and outcomes help identify the key performance indicators that will be used to measure and assess achievement of the regulator’s compliance objectives, which can assist with an overall assessment of the regulator’s performance. For example, an indicator of a more efficient licensing regime might be a relatively smooth and quick licensing process. It will be necessary to clearly articulate the specific quantitative and/or qualitative measures that are used to assess performance based on the key performance indicators and the data that will be used to measure performance against the key performance indicators. Measurable performance indicators and availability of relevant data are critical in this regard.
  • Performance assessment and reporting: a performance monitoring framework should practically describe how the regulator’s performance will be assessed, using the data collected. This process will typically involve:
    • Analysis: data collected for each performance indicator will need to be analysed, using the compliance objectives as the basis of analysis.
    • Assessment: results of the analysis should be used to determine whether the compliance objectives are being achieved and, if not, possible reasons why not.
    • Reporting: results of the analysis will also need to be reported (internally and externally) on a regular basis to help ensure transparency and accountability of the regulator’s compliance and enforcement activity.
  • Review, evaluation and continuous performance: the performance monitoring framework should outline how and when the regulator will review and evaluate its performance to ensure continuous improvement in achieving its compliance objectives based on the results of the performance assessment.

Tailoring performance monitoring to match the regulatory framework

A challenge that faces many regulators is knowing how to tailor the main elements of an ideal performance monitoring framework to the particular regulatory framework for which the regulator has oversight. The table below provides some practical guidance in this regard.

MAIN ELEMENT OF PERFORMANCE MONITORING FRAMEWORK WHAT THE REGULATOR NEEDS TO DO GUIDANCE TO TAILOR TO REGULATORY FRAMEWORK
Compliance objectives The regulator will need to identify its main compliance objectives. These objectives are linked to the regulatory framework overseen by the regulator and will be specific to each stream of compliance and enforcement activity undertaken by the regulator.
  • Undertake stock-take of main compliance and enforcement activities
  • Identify which type of activity may require or benefit from improvement
  • Clearly articulate compliance objective(s) for each type of activity that requires or could benefit from improvement
  • Ensure compliance objectives are consistent with the regulatory framework and broader regulatory principles
Inputs, outputs and outcomes For each compliance objective, the regulator will need to identify the types of inputs, outputs and/or outcomes that are sought to be achieved by the regulator in pursuance of its compliance objectives.
  • Analyse each compliance objective to determine how it could be improved
  • Clarify whether the improvement can be achieved through modification of inputs, outputs and/or outcomes
  • Identify the specific inputs, outputs and outcomes that will need to be modified to help achieve each compliance objective
Performance indicators and measurement The regulator will need to translate the inputs, outputs and/or outcomes for each compliance objective into one or more specific performance indicators.
  • For each compliance objective, identify performance indicator(s) that will be used to assess performance based on the relevant inputs, outputs and/or outcomes that will need to be modified
  • Ensure that each performance indicator is objectively measurable in quantitative and/or qualitative terms
  • Ensure that data is or will be available to assess each performance indicator on an ongoing basis
Performance assessment and reporting The regulator will need to establish a practical process to ensure that performance is properly assessed using the performance indicators and that, where appropriate, the results of the performance assessment are reported.
  • Establish clear and simple process to assess performance
  • Ensure that all relevant internal stakeholders are involved in and/or informed about the performance assessment process and results
  • Where possible, utilise existing performance review and reporting mechanisms to avoid unnecessary duplication of processes and effort
Review, evaluation and continuous improvement The regulator will need to ensure that the results of the performance assessment are used to drive continuous improvement in the regulator’s activities.
  • Establish regular review and evaluation of performance based on results of performance assessment
  • Ensure that the results of the review and evaluation are shared with relevant internal and external stakeholders
  • Engage relevant internal stakeholders to drive and ensure continuous improvement