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Regulators can best be described as the “referees” of markets. These public bodies help ensure access to and the quality of key public services, facilitate infrastructure management, including investment, and enhance market efficiency. They play a crucial role in supporting sustainable and inclusive growth while maintaining confidence in markets, which is critical for trust in public institutions. This is no easy task. Regulators operate in a complex environment at the interface among public authorities, the private sector and end-users. As “referees”, they must often balance competing wants and needs from different actors through the application of good governance. This means that they must behave and act objectively, impartially, and consistently, without conflict of interest, bias or undue influence.
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Good governance practice requires assigning the right functions to appropriate and capable public institutions. There is value in separating some regulatory functions in public bodies, especially those related to administering or implementing regulation, from the policy-setting and fiscal policy functions that are exercised by government. The independence of these public bodies can contribute to the better functioning of the sectors and markets they oversee.
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Understanding the benefits, challenges and the practical implications of independence is crucial for the performance of the regulator. However, fully understanding these different aspects of independence can be difficult. This chapter presents the methodology adopted to address some of these difficulties. It provides an overview of what independence is expected to bring to regulators and some key insights on the practical requirements and practices in place to safeguard independence.
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Independence is a means towards more effective outcomes rather than an end in itself. As a variety of pressures are put on regulators and independence of regulators becomes a question of increasing debate, it is particularly important to identify what is the value added of independence. Drawing on a review of the literature, this chapter describes the determinants of independence and the expected outcomes of independence.
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Attempts to analyse the practical implications of independence have been limited. The survey conducted among more 48 regulators from 26 countries fills this gap. Drawing on this survey, this chapter presents some of the features of independence and how these features are practiced by regulators, focusing on the relationship with government and industry, staff and budget.
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