Think of administrative agencies, and you often think of their efforts to enforce the law, such as environmental regulators fining polluters or financial regulators taking inside traders to court. In fact, agencies sometimes do just the opposite: They excuse parties from compliance. Agencies can use either prospective waivers or exemptions to excuse regulated entities from compliance. How and when agencies use these tools is the subject of a set of recommendations recently adopted by the Administrative Conference of the United States (ACUS).

The topic can be tricky. On the one hand, waivers and exemptions can be good things. After all, agencies often need to grant flexibility when circumstances require. Emergencies like Hurricane Sandy, for instance, have prompted the Federal Transit Administration to issue “blanket waivers for several statutory and regulatory provisions.” New technologies, like “unmanned aircraft systems,” or drones, similarly demand adaptability. In more established settings, such as mining operations, general rules do not always fit particular situations. And agencies sometimes just do not have the resources for full enforcement. Waivers and exemptions thus often make a great deal of sense.

Unfortunately, waivers and exemptions also present risks. When abused, they may result in arbitrariness and unfairness. They can also undermine predictability and public safety. Additionally, there is a danger that insiders may have greater access to waivers and exemptions than new market entrants. Further exacerbating these risks, agencies may succumb to the temptation to rely too heavily on waivers and exemptions rather than amending outdated regulations.

Waivers and exemptions thus present a significant challenge: How can we gain their benefits while minimizing their costs?

Read more at The Regulatory Review