Systemic risks – time for a regulatory reset?

Our expectations of regulation

As a society, we expect a lot from regulation. We expect that when time, money and effort are invested by government in designing and implementing regulation, it will work. More specifically, we expect that regulation will effectively manage the risks the regulatory framework has been designed to address.

There is a broad range of reasons why these expectations will not always be met. Regulated entities may show a blatant disregard for the law, despite the best efforts of the regulator. Funding for the administration of the regulation may be limited. The regulator’s staff may lack the skills or resources to effectively address non-compliance. The regulatory framework may be overtaken by events or the risks the framework was designed to address may have enlarged, multiplied or mutated since inception of the framework.

The recent, tragic bushfires in Australia have highlighted how existing regulatory frameworks may not be big nor bold enough to stand up to risks that are of a nature, scale and consequence beyond what we have seen before. These “systemic risks” threaten the systems upon which society depends - namely, our health systems, our educational systems, our ecosystems, and our systems of infrastructure, including our homes and businesses. These systems bind us together and are at the heart of what creates well-functioning and sustainable communities.

In the absence of adequate action to address one of the primary causes of bushfires (and, for that matter, other hazards caused by climate change) at global and national levels, it is incumbent upon us as a society to find a way to effectively defend ourselves against systemic risks of this kind. Failure to do so could be catastrophic. This is not hyperbole; unfortunately, the recent Australian bushfires illustrate the point only too well.

Existing regulation to address bushfire risks

In Australia, there is a plethora of regulation that is already in place to address bushfire risks - regulation to prevent these risks from materialising, as well as regulation to address risks once they have eventuated.

Examples of the former include legislation governing land-use planning , building and management of forests and native vegetation, which have been designed to protect land, buildings and critical infrastructure against natural hazards, including bushfire risks. Emergency management legislation and environmental protection legislation are examples of the latter, which form the basis for a response to bushfires once they have occurred and, among other things, are designed to protect the health and safety of communities, individuals and the environment. These more formal forms of regulation may be supplemented by a range of government policies and programs to address or respond to bushfire risks, such as the provision of health protective kits, financial assistance and mental health support to those affected by the fires, as well as education of school children about bushfire preparedness.

Evidently, there are multiple regulatory “touch points” to address bushfire risks, both before they occur, as well as after they materialise. These touch points may be mobilised through legislation, policies, programs and guidelines and may be administered by a range of bodies at all levels of government. The collective effectiveness of all of these forms of regulation depends, at least in part, upon recognition of the systemic implications of bushfire risks.

Coming to terms with systemic risks

Risks come in all shapes and sizes. Some are easily identifiable and self-contained and, therefore, are relatively easily regulated. Others are large, diffuse and difficult to understand, let alone respond to; systemic risks, such as the risks associated with the recent Australian bushfire risks, are an example.

An important step in effectively regulating systemic risks is to acknowledge their systemic nature, scale and implications. This will help to ensure that all the most important regulatory touch points have been activated and, where regulation is not a viable option to address risk, the gaps can be filled, including through voluntary responses by organisations, communities and individuals.

The time has come for a regulatory reset to address systemic risks, particularly bushfire risks and other risks associated with climate change. And we all have an important role to play.