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The Regulatory Pyramid



Legal academics Ian Ayres and John Braithwaite developed the regulatory pyramid, which has been adopted, copied and amended by academics and policymakers.

At the peak of the pyramid is ‘Command Regulation with Nondiscretionary Punishment’. Governments use it for serious crime such as murder where minimum punishments such as life imprisonment are mandated.

Most law for crime and general offences is contained within the second tier – ‘Command Regulation with Discretionary Punishment’. Criminal law sets out various offences such as forgery or assault and then mandates maximum sentences. The judge has discretion as to what sentence will be imposed and whether it is jail, fine or other punishment. This tier can also contain legislation regarding advertising. Misleading advertising is an offence in most countries and the advertiser upon conviction can be fined and/or have the court order corrective advertising at the offender’s cost. However Regulators have found that there is huge cost in administering a prosecution system for advertising. Therefore it is used only for serious cases.

The Self-Regulation tier is the most common model for advertising globally. The advertising industry set codes by which all advertisers should abide. In short the codes require advertisements to be legal, decent, honest, truthful and socially responsible. However compliance also extends to advertising agencies that create the advertisements and the media who publish or broadcast them. There is also a complaints system where members of the public can complain to an independent complaints adjudication board or jury about breaches of the codes. If a complaint is upheld then the advertiser is required to withdraw the offending advertisement. There is usually near 100% compliance. As industry funds the regime there is no cost to Government.

The tier of ‘Enforced Self-Regulation’ requires close cooperation between the Regulator and the Self-Regulatory regime. Industry operates the Self-Regulation model but the State will assist with enforcement. In the UK the Self-Regulatory Advertising Standards Authority (ASA) has a formal arrangement with the Fair Trading Regulator to provide a legal ‘backstop’. If a maverick advertiser refuses to withdraw an offending advertisement the Regulator will enforce the Decision of the ASA. In practice this is rarely used because compliance is near 100%, but the threat remains. This model provides benefit to the Government, as the costs are minimal.

There are variations of Enforced Self-Regulation that are termed Co-Regulation. The Government and industry combine to form and administer a joint system of regulation. Co-Regulatory systems take many forms depending on the responsibilities taken by each of the partners. For instance it may be a Self-Regulatory system with the Government having a formal monitoring role. In such regimes it is common for the Government to be represented on the governing body.

There are certain features relating to every level of the pyramid.

–       Those regulatory options higher up the pyramid incur greater costs. Also the punishments are greater.

–       The regulatory options higher up the pyramid are slower than Self-Regulation. Advertising Self-Regulatory systems usually take about 6 weeks to resolve a complaint but Command Regulation takes months or years.

–       At the lower end of the pyramid the required burden of proof is the civil standard of the ‘balance of probabilities’, which is much stricter than the criminal standard of ’beyond reasonable doubt’ used in the Command Regulation model.

–       A consequence of the problems of cost, slowness and higher burden of proof is that under a Command Regulation regime the number of complaints that result in prosecution is substantially less than those considered under Self-Regulation.

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