Standards watchdog urges regulators to manage 'revolving door' properly

September 21, 2016

Fewer than a third of regulatory bodies have policies to deal with ‘revolving door’ issues where staff move between the organisation and the entities or profession it regulates, a report by the Committee on Standards in Public Life has revealed.

The report – described as a ‘health check’ of how a range of regulatory bodies live up to the seven principles of public life – said: “Whilst the ‘revolving door’…..can bring benefits in terms of technical knowledge to the regulator and promote compliance within the regulated entities, it brings its own risks.

“Neither the appointment of individuals from the regulated sector, nor their movement to it, need be problematic. But, if not properly managed with adequate safeguards, the revolving door can be a serious threat to the regulator’s essential integrity and independence.”

The Committee said this was true not only for board members and senior executives, but also for operational staff at lower levels of the organisation. It expressed concern that, where moves remain unmanaged, regulatory independence was under threat.

The report sets out best practice on how to manage the propriety issues around movement of personnel:

Policies and procedures should be in place to manage ‘revolving door’ situations where individuals come from, or go to, the regulated sector. These should apply to all individuals at any level of the organisation.
Where board members and staff are recruited from the regulated sector, relevant safeguards should be considered, such as isolation from the regulation of recent employers or exclusion from key meetings.
At every board meeting, members should be asked to declare any actual or potential conflict of interest and these should be publicly recorded. Where the board agrees that a conflict is inappropriate, the member should be recused from both the discussion and decision making.
The process for departing board members and senior executives should be in line with arrangements for ministers and senior civil servants as determined by the Advisory Committee on Business Appointments. In order to ensure that such moves are conducted with integrity, and to promote trust in the regulatory body, regulators should be entirely transparent about post-employment destinations and restrictions.
Additional safeguards should be considered for anyone who leaves the regulatory body. These include explicit prohibitions on disclosing confidential information, restrictions on contact with the regulator, and gardening leave requirements.
All individuals taking up positions subject to pre- and post-employment rules should be made aware of them at their appointment.
Particular care should be taken where non-executive board members have a live, concurrent post (as part of a portfolio of interests) which could give rise to conflicts of interest. Any conflict of interest for non-executives should be established at the start of the selection process and actively managed to ensure there are no material factors impeding independence of judgement.

Lord Bew, Chair of the Committee on Standards in Public Life, said: “Regulators play a distinctive and powerful role in public life. The integrity, objectivity and other ethical standards of a regulatory body are a vital part of its overall effectiveness. Regulation is all about striking the balance: between engagement and capture, transparency and necessary confidentiality and between independence – both from government and those they regulate – and accountability.

“The evidence we collected shows that in broad terms regulatory bodies are committed to maintaining high standards of conduct, but there have been instances which are out of step with the standards expected. We believe regulatory bodies can do more to maintain integrity through processes to mitigate the risks arising from the ‘revolving door’, regulatory capture and other challenges to their independence.”

Lord Bew added: “Post-Brexit, the UK regulatory landscape is about to undergo a seismic shift and there will be renewed focus on how services and industries are regulated. Maintaining high ethical standards will be key to retaining public confidence through those wider changes and I hope that our report will be a useful guide both for regulators and those holding them to account.”

Further recommendations for regulators and government contained in the report include:

Regular evidence based assurance of ethical standards to the Board
Proactive corporate governance arrangements to manage conflicts of interest
Annual compliance certification for ethical standards by accounting officers
Up to date, publicly accessible registers of meetings, hospitality, gifts and interests
Code of conduct to cover all personnel including contractors, consultants, non-executives, and secondees.
Standards expressed in the Code evident in recruitment, appraisal, induction and training
Post-employment arrangements for Board members of regulatory bodies should be brought into line with those for Ministers and senior servants, with transparency about appointments and restrictions.
Any conflicts of interest established and actively managed at the start of any selection process for Board members
Ministerial guidance to regulatory bodies should be published online. It should be considered but not treated as binding unless there are statutory provisions for guidance.
Ministerial appointments to regulatory bodies should be timely, transparent, on merit and with proper regard to the needs of the organisation
Ministers should not be involved in the hiring or firing of Chief Executives or other operational staff unless this is expressly laid down by statute.
Regulatory bodies should ensure staff are clearly aware of conflicts of interest and explicitly advised about the risks of bias in decision making
Regulators should publish full and accessible information on their sources of funding and specifically, any restrictions proposed by those who provide their funding.
Regulatory bodies not covered by the Freedom of Information Act should have a publication scheme in line with best practice established by the Information Commissioner’s Office
The Regulator’s Code should be amended to include promotion of an ethical approach to compliance.