Self-regulation

The spectrum of regulatory instruments ranges from those which involve no government intervention through to explicit traditional command and control regulation. Self-regulation is an instrument with no or limited government involvement.

Self-regulation typically involves a group of economic agents, such as firms in a particular industry or a professional group voluntarily developing rules or codes of conduct that regulate or guide the behavior, actions and standards of those within the group. Sometimes, a self-regulatory organization (SRO) is created for such a role. The group is responsible for developing self-regulatory instruments, monitoring compliance and ensuring enforcement. Examples of self-regulation include codes of practice, industry-based accreditation arrangements, and voluntary adoption of standards.

For example, in 1997 the European Association of Consumer Electronics Manufactures developed an agreement to reduce the amount of electricity used by electronic products, such as TVs and VCRs, while on standby mode. In the finance sector, the Financial Industry Regulatory Authority (FINRA) is able to audit dealers and associated firms and to ensure compliance with the standards currently in place. FINRA also oversees arbitration between investors, brokers, and other involved parties. This oversight provides a standard to address various disputes although it also limits actions a firm may take outside of the system. In the energy sector, the regulatory structure for the electricity sector in Zambia is the independent Energy Regulation Board (ERB). The ERB regulation for installers specifies 3-4 sets of equipment that can be installed (photovoltaic modules, batteries, fitting), to avoid the installation of substandard equipment. In parallel, a code of practice for “photovoltaic systems designs and installation” is currently being produced by the Zambia Bureau of Standards, which can be seen as an industry self-regulation.

Self-regulation is assumed to have advantages over government regulation. It is supposed to be a solution to the overloaded agenda of government and the courts. It can be more flexible than governmental regulation because within a time frame, interested parties will do their best to make the necessary alterations. Finally, maintenance reputedly is more effective, because the ones who must comply are the ones who made up the regulations.
Despite the obvious benefits of self-regulation, it nevertheless is not without its problems. First, it must be safeguarded that all relevant parties have a share in the self-regulatory processes. The government may need to guard the access of weak or poorly articulated societal interests. The costs of the regulation might otherwise be distributed in an unequal and unjust way.

Second, in many countries, there is a difference between the kinds of legal protection of individual citizens. In some countries, legal protection against the implementation of government regulations tends to be better than against private law regulations. Self-regulation arrangements, then, will lead to decreasing legal possibilities for individual citizens. Third, self-regulation may not be as flexible as expected. Especially in those cases in which highly incompatible interests are supposed to coordinate and draw shared regulations, it may take quite some time before the regulations are set or changed. Fourth, self-regulation will not necessarily be as powerful as was hoped. The maintenance of some regulations may still need penal law, a type of law that only governments are allowed to make.
It may, therefore, be advisable for governments to intervene in the self-regulatory processes. However, this is a hazardous obligation. A government may destroy the readiness and ability to self-regulate. A compromise could be co-regulation, which usually involves the industry or profession developing and administering its own rules but with the government providing legislative backing to enable the arrangements to be enforced.