The Integrity of Private Third-Party Compliance Monitoring
6 Pages Posted: 27 Nov 2015 Last revised: 11 Dec 2015
Date Written: December 10, 2015
Government agencies are increasingly turning to private, third-party monitors to inspect and assess regulated entities’ compliance with law. The integrity of these regulatory regimes rests on the validity of the information third-party monitors provide to regulators. The challenge in designing third-party monitoring regimes is that profit-driven private monitors, typically selected and paid by the firms subject to monitoring, have incentives to downplay problems they observe in order to satisfy and retain their clients. This paper discusses the most important factors that our research and the research of many others has shown can affect the integrity of third-party monitoring, and highlights some policy implications for regulators designing third-party monitoring regimes.
Keywords: auditing, regulation, compliance, conflicts of interest, policy, inspection, certification, third-party
JEL Classification: D82, G18
Suggested Citation: Suggested Citation