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Knowing when to fight and when to comply with regulators

Sarah Ellson

Sarah Ellson
Business

Posted on: 04/12/2018

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All businesses are subject to some form of regulation.  Whether it is Health and Safety, Trading Standards or in the more highly regulated sectors such as life sciences or financial products.  Businesses will often need a licence or registration to be able to trade and when an issue of possible non-compliance is raised anxiety levels will rise and managers and owners can be left wondering how to manage their relationship with the Regulator.

Here are my 10 top tips:

1. Stay calm and polite – co-operate where you can

Inspectors and regulatory staff are humans too. Threatening or angry responses only worsen their assessment of the conduct of the business and its managers and can result in closer scrutiny and an escalation of the investigation. Many professionals will be under a specific obligation to co-operate with their regulators, with non-cooperation being a potentially additional allegation whilst co-operation often being something for which credit can be claimed. The exception is your right not to self-incriminate which should be asserted where appropriate and having sought and been given clear information about why you are being asked questions (orally or in writing) and how your answers may be used.

2. Assess the value/need for an ongoing relationship

Consider the value of the registration or licence to your business. If you are a care home operator CQC registration is required by law; a surveyor may need RICS membership to be able to do surveys for bank lenders; but some registrations are optional and if the burden of compliance is too high one option is always to consider cancellation of membership. Be aware however that some regulators will still want to conclude investigations into non-compliance before letting membership lapse, and may which to sanction the conduct in any event.

3. Be on top of your records

One of the first things any Regulator will seek is documentary records that are associated with the compliance they are concerned about. Having organised and secure records immediately creates a more reassuring impression whereas the absence of records or poor record-keeping can give rise to additional concerns and a lack of confidence from the regulator. If you are asked for records seek to understand the basis for the request. Many regulators have statutory powers to compel the provision of documents but they may opt for a less formal “just ask” approach initially which can enable you to be pro-active in what you want to provide. You may have the objective of wishing to provide early reassurance and have the regulatory investigation brought to a swift conclusion.

When providing documents do consider whether any of the documents might be considered to be legally privileged or to contain personal data and how your rights and obligations might impact on what you are willing and able to provide.

4. Challenge factual accuracy

Before making a judgement on compliance or breach of regulatory requirements the Regulator must have an understanding of the facts. There will usually be processes to challenge the factual accuracy assessment, initially in writing and later in tribunal or Court proceedings. Do look carefully at what the Regulator believes the facts to be as if this is incorrect it could be building its whole case on a mistake or misunderstanding. If you can demonstrate facts were other than the Regulator understands them the whole investigation may be altered, after all, who knows your business better than you. Very rarely will the Regulator have been a direct witness to the events in question.

5. Understand the precise legal tests which will apply

How does the Regulator’s power to investigate and sanction operate? Some non-compliance can be “strict liability” with very little scope to argue a discretionary approach, in which case resource may be better focussed on minimising any sanction. However many regulators will exercise a judgement before concluding or arguing that there has been non-compliance. Be aware of the precise Code or Rules which apply and bear in mind the burden of proving the case often rests on the Regulator who must show there has been a breach.

6. Consider challenging the decision making

Knowing when to accept there has been a breach, accept the sanction and move on is important, particularly given that in many sectors regulation is not optional and the relationship with the Regulator is ongoing. However, Regulators do get things wrong, and you may dispute the facts and/or whether those facts amount to a breach of the Rules or requirements. In these cases Regulators can and should be challenged and cases resisted.

Many regulators are public bodies or authorities and are required to act reasonably, rationally and in accordance with their procedures. If this has objectively not been the case decision-makers should again be taken to task.

7. Consider how you will present any mitigation

Whether or not you are challenging the allegation of non-compliance presenting any mitigation for a breach of requirements is important. Were there particularly unusual or challenging circumstances at the time of the breach? Personal difficulties, new or untrained staff, equipment failure, misunderstandings may all be relevant but bear in mind how these can be shown to have been a temporary difficulty which has now been addressed. Think also about positive statements made about the provision of your service, can you obtain positive references (if these show an awareness of the alleged breach they will often carry greater weight).

8. Consider what you will do in future

Investigations can be closed and sanctions substantially reduced if robust and genuine measures are taken to ensure non-compliance will not happen again. Although some regulators have a role in “punishment” many are more focussed on reducing risk to the public or colleagues in the future. Management action plans with clear targets and demonstrable achievements are vital. Learning lessons can provide great reassurance. Therefore staff training, new systems of record keeping, increased levels of monitoring can all provide credit.

9. Know your rights of appeal

If you anticipate that you will not accept the Regulator’s decision make sure you know what rights of appeal or challenge you have and the deadlines for such applications. You may want to consider the resources required for any appeal (and the risk of having to pay fees or costs for exercising this right).

10. Do not stick your head in the sand

A regulatory investigation will almost certainly not go away if you ignore it and as highlighted earlier non-compliance can be an aggravating feature. Some regulatory investigations have unforeseen consequences, personal liability and a future impact on running other businesses. Being on the front foot and appraised of your options is by far the recommended course of action

About the author

Sarah has nearly 19 years of experience advising Regulators and those working in highly regulated sectors from nursery schools, the security industry, and bioscience, to sport, financial services and health and care delivery. She supports businesses to be compliant and to deal with regulatory investigations.

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