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Regulators handed greater, more flexible sanctions

15 August 2008

As regulators are handed more weapons with which to battle non-compliant businesses, we urge those businesses not to take sanctions lying down, and to challenge them if necessary.

From 1 October 2008 some regulators will have further sanctions available under the Regulatory Enforcement and Sanctions Act 2008 (the Act), enabling key UK regulators to impose greater and more flexible civil sanctions on businesses.

The Act establishes a new framework for better regulation and consistency between regulators to ensure that local authorities are working together to keep the regulatory burden on businesses to a minimum. It aims to treat those businesses with good compliance records with a ‘light touch’ when it comes to regulatory inspections and enforcement.

The Act should increase transparency between local authorities and the businesses they regulate. It also provides the authorities with new civil sanctions for dealing with non-compliance (which would previously have been dealt with in the criminal courts) to ensure that businesses which have saved costs through non-compliance are not placed at an unfair advantage to those competitors who comply with their regulatory obligations.

The new civil sanctions

The following four new civil sanctions are available under the Act:

Fixed Monetary Penalty Notices (FMP) – businesses may have an FMP imposed on them. The maximum amounts are still to be specified, but it is likely they will be capped at £5,000. It is anticipated that there will be different levels of FMPs depending on factors such as the size of the business. Regulators must be satisfied beyond all reasonable doubt that an offence has been committed and must serve a ‘Notice of Intent’ before imposing the FMP. The organisation will then have the opportunity to make representations to the regulator before receiving the penalty.

Discretionary Requirements – regulators may impose, by notice, one or more of a range of sanctions, including a variable monetary penalty, compliance notice or a restoration notice.

Stop Notices – prevent businesses from carrying on the activity listed in the notice until the steps, as specified in the notice, have been taken. A stop notice may only be served if the business is carrying on or is likely to carry on the activity, and the regulator has the reasonable belief:

Enforcement Undertakings – a business may be asked to give an undertaking to a regulator (where it is reasonably suspected that it has committed an offence) to take corrective steps to carry out the undertaking. Effectively this is a promise by an organisation to take certain actions. If there is a breach of the undertaking the regulator may prosecute the business for the original offence or impose an administrative sanction such as a discretionary requirement.

The new sanctions are designed to work as an alternative to criminal prosecution, and businesses may find that regulators will utilise these powers increasingly in dealing with non-compliant businesses.

The Act grants powers to a number of regulators, including the Environment Agency, Health and Safety Executive, Financial Services Authority, Food Standards Agency and local authorities. Regulators will not be given automatic access to the powers under the new Act and will have to receive authorisation by ministerial order.

Right to appeal

The Act provides a route of appeal for a decision made by the Regulator for FMPs, Discretionary Requirements and Stop Notices (as Enforcement Undertakings are voluntary) on three grounds:

Appeals will be heard by a ‘first tier tribunal’ or other type of statutory tribunal. The ‘first tier’ tribunal is a new type of tribunal and will be divided into ‘chambers’. It is intended that a ‘general regulatory chamber’ will hear appeals against the new sanctions. The tribunal will have the power to withdraw or confirm the sanction, take other steps such as imposing another sanction, or remit the decision back to the regulator for further decision.

Guidance on enforcement

Regulators must publish guidance on how they will enforce the law and use these sanctions. This guidance will contain information on how the new sanctions should be used, how the financial penalties are to be calculated, and the rights of representation and appeal. It will be published after consultation with the relevant local authorities, the Local Better Regulation Office and relevant central government departments. Regulators will not be able to use the new sanctions until such guidance is published.

Each regulator must also prepare an Enforcement Policy setting out how it will use the new sanctions and the circumstances in which the regulator is likely to take such action (these are likely to be similar to the existing enforcement policies used widely by local authorities). Regulators will be required to publish the details of enforcement action taken against businesses. This is likely to be published in the regulator’s annual report, but other publicity options such as press releases are also available.

The regulatory burden

The new Act provides a duty on certain regulators to ensure that they regularly review their functions and identify any burdens that are considered unnecessary. The regulator must then take steps to remove any unnecessary burdens and report annually on its activities to reduce these. This is designed to ensure disproportionate burdens are not imposed on businesses.

Some regulators already subject to the duty are: the Gas and Electricity Markets Authority (OFGEM), the Office of Fair Trading (OFT), the Office of Rail Regulation (ORR), and the Water Services Regulation Authority. The duty can be applied to other regulators by the approval of both Houses of Parliament.

The Act is significant for most businesses in that it provides regulators with further weapons to take enforcement action against them as much as it is designed to reduce the regulatory burden on compliant businesses. Businesses should therefore be aware of their right to make representations when faced with one of these new sanctions, and should not accept the sanction as a mere formality.

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Hayley Saunders

Solicitor
T: 08700 86 3147
I: +44 (0)1604 54 3147
E: hayley.saunders@shoosmiths.co.uk