Draft legislation currently before Parliament, the Regulatory Enforcement and Sanctions Bill, aims to provide certain regulators, including the Food Standards Agency and the Environment Agency,with enhanced powers.
The Bill has emerged fromthe Government’s Better Regulation agenda. One of its primary objectives is to supplement the currently restricted range of sanctions powers available – typically letters of caution or full blown prosecution – with a new “sanctioning toolkit”. However, the proposals have come in formuch criticismnot least by Parliamentary scrutiny committees.
The new “sanctioning toolkit”
The Bill provides for the following new sanctions:
- fixedmonetary penalties
- discretionary requirements
- stop notices
- enforcement undertakings
Not all regulators will be given these powers, and not in relation to all regulatory offences. Instead,Ministersmay (through subordinate legislation) confer some or all of the new enforcement powers in relation to certain offences. First, the regulator in questionmust demonstrate its compliance with the emerging principles of “Better Regulation”, eg, transparency and proportionality.
Fixed monetary penalties
A regulator with the powers to issue a fixedmonetary penalty will be able to do so instead of bringing a prosecution only where it is satisfied beyond reasonable doubt that an offence has been committed. If the regulator upholds its view following a request for a review of its decision, then it is for the recipient of the penalty to prove on appeal that the regulator’s decision is wrong (i.e. based on an error of fact, law or is otherwise unreasonable). This contrasts with a criminal prosecution, where the regulator would need to establish with evidence the defaulter’s guilt beyond reasonable doubt. The same is true of the other new “tools” in the toolkit. Also, little is currently said in the Bill about the appeals procedure – it is left for the subordinate legislation conferring the powers to specify which tribunal will hear appeals. As the Select Committee on Delegated Powers and Regulatory Reform(“Regulatory ReformCommittee”) pointed out, the rights to appeal are of fundamental importance to the fairness of the new systemand the Bill ought to incorporatemore detail.
The amount of the fixed penalty will be set out in the subordinate legislation.Where it relates to an offence triable only in theMagistrate’s court, the penaltymay not exceed the present maximumfine for that offence. There is no limit to the level of penalty where the offence is one which can be tried in the Crown court. The Regulatory ReformCommittee has recommended that also be capped at theMagistrate’s court upper limit. In neither case can the defaulter opt for a trial instead of paying the fixed penalty.
Parliament’s Constitution Committee has scathingly commented that the lack of any requirement for a regulator to give notice that he intends to serve a fixedmonetary penalty or to give the defaulter an opportunity to object does notmeetminimumstandards of procedural fairness and natural justice.
Imposition of discretionary requirements
Discretionary requirements will be available instead of a prosecution where the regulator is satisfied beyond reasonable doubt that a relevant offence has been committed. Thismay involve one ormore of the following:
- payment of amonetary penalty of an amount determined by the regulator – with no upper limit even if the underlying offence could only be brought for trial in theMagistrate’s court and would there be subject to amaximumfine. (The Guide to the Bill alsomakes clear that the regulatormay be expected to set the penalty at a level which removes any element of financial gain fromthe commission of the offence)
- steps to be taken within a specified period of time to secure that the incident of non-compliance will not continue or recur
- steps to be taken within a specified time-period to restorematters to how they would have been had the incident of non-compliance not occurred
Again, the criticismhas beenmade that regulator’s discretion should be restricted to setting penalties no higher than would have been achievable in theMagistrate’s court. In this case, however, a regulator intending to issue discretionary requirementsmust first give notice to the operator and at least 28 days for the submission of written argument.
Where a variablemonetary penalty is proposed, the defaultermay offer a “voluntary undertaking” as to the action it will take (including the payment ofmoney) to benefit any person affected by the offence. If so, the regulator has the option of accepting the undertaking plus an appropriate (lower)monetary penalty. If the operator fails to carry out the steps it has promised, a prosecution could still be brought.
Stop notices would prohibit the carrying on of a specified activity until certain steps have been certified as having been completed by the operator and could be used where the regulator reasonably believes that the activity carried on involves the commission of a relevant offence, involving serious harmto human health, the environment (including the health of animals and plants) or the financial interests of consumers.
This is a powerful weapon in a regulator’s arsenal and would be in addition to existing powers to revoke operating licences for activities that require one. The subordinate legislation granting the power to issue stop notices would also have to provide the circumstances in which compensation is payable to the operator. The Government’s Guide to the Bill states:
“Compensationmight be appropriate where a business wins an appeal against imposition of a stop notice and where the regulator is considered to have acted unreasonably or in serious default. Compensation will not be appropriate in all cases, for example…if an appeal was upheld on a technicality.”
Operatorsmay therefore incur losses as a result of a shut down which are not necessarily compensable. The Regulatory ReformCommittee has insisted that the essential elements of the scheme of compensation are set out clearly in the Bill itself.
Acceptance of enforcement undertakings
This power would allow a regulatorwith reasonable grounds to suspect a relevant offence has been committed to accept an enforcement undertaking. Thesewill be promises by the operator to take certain action within a specified period, but will not in themselves be enforceable. However, so long as the undertaking is fully honoured by the operator no prosecution can be brought, nor can any fixedmonetary penalty or discretionary requirement be imposed.
The types of things that can be offered by the operator for inclusion in an undertaking are similar to those which could be imposed by the regulator through a discretionary requirement sanction. It is possible that the terms of the undertaking would bemade publicly available.
Aside fromthe new sanctioning toolkit, the legislation will establish a new quango, the “Local Better Regulation Office”, tasked with promoting greater co-ordination of regulation at local level. It also contains amechanismfor “primary” or “lead” regulators to be nominated, such that businesses spread over several locations will no longer have to deal with amultiplicity of regional or local offices.
The Bill also allowsMinisters to impose on regulators a duty not to impose ormaintain unnecessary burdens on the regulated.
These proposals have been brought about at least in part by the low level of fines resulting fromprosecutions brought for regulatory breaches, the treatment of convictions for this type of offence as in some ways less serious than other criminal offences and the fact that fines may in some instances be far lower than the financial gain to be achieved by non-compliance. Regulators such as the Environment Agency have to date had a stark choice between the relatively toothless caution and the perhaps disproportionate by harsh criminal prosecution.
The Government promoted the Bill as ameans to “ensure greater certainty for those businesses that are doing their best to comply with the law. There will be swifter and more appropriate treatment for those businesses that seek to gain an unfair advantage by deliberately flouting regulation.” However, reception of the Bill has beenmixed.
The Constitution Committee has commented that it enables the transfer, on an unprecedented scale, of responsibilities for deciding guilt and imposing financial sanctions (with no upper limit) away fromindependent and impartial judges to officials. Indeed, a particularly worrying detail of the Bill is that it allows regulators to be given powers to use information as evidence in establishing whether to use the new sanctions which ordinarily they would not legally be allowed taken into account.
The chief executive of the Environment Agency, initially a supporter of the proposals, also said: “It was all looking rather splendid until we received the greater detail of the Bill following consultation.…Then it was clear that the Bill had been considerably hijacked.”
Fromthe food and beverage industry’s perspective, businesses faced with a breach of regulations may find they havemore scope by way of pro-actively offering voluntary undertakings or enforcement undertakings to avoid formal sanctions or indeed prosecution. However,much of the impact of the legislation will only become apparent once it is clear how it is to be applied to individual regulators and for which particular offences.
These proposals are especially significant in placing the onus on operators to challenge the exercise of discretion by the regulators towhomthe newpowers are given.However, fixed monetary penalties especiallymay enable operators to achieve a swift resolution of uncontestable breacheswithout themanagement time, expense and greater publicity of a trial. The unlimited level of discretionary requirements sanction does give cause for concern. However, by comparison, regulators in other areas, such as the economic regulators of utilities companies and the competition authorities, in fact already have powers to impose fines of up to 10%of turnover.
Given the level of criticismfollowing scrutiny of the current draft, we would expect further amendments to be tabled before it finally becomes law.