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What is Regulation?

6th Asian Roundtable on Corporate Governance Theme II, Session 2 Ensuring Capacity, Integrity and Accountability of Regulators and Supervisors Jaweria Ather Securities and Exchange Commission of Pakistan Seoul, 2-3 November 2004. What is Regulation?.

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What is Regulation?

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  1. 6th Asian Roundtable on Corporate GovernanceTheme II, Session 2Ensuring Capacity, Integrity and Accountability of Regulators and SupervisorsJaweria AtherSecurities and Exchange Commission of PakistanSeoul, 2-3 November 2004

  2. What is Regulation? • The OECD definition refers to regulation as a diverse set of instruments by which governments set requirements on enterprises and citizens • Regulation is aimed at correction of market failures and protection of public interest • Regulators are a third party, overseeing transactions between firms and their customers – mandating limits on the behavior of different market players

  3. Why Regulate? • Protection of public interest • Changing nature and increasing complexity of corporate sector • Increasing responsibility of and expectations from regulators • To restore public confidence in the wake of financial scams

  4. Why regulate? (cont’d) • Essential nature of some industries • Competition might not be sustainable or might lead to unstable or undesirable outcomes • To ensure quality and availability of services • Social and Economic goals • Economic development • Conservation

  5. Common problems in regulation • Vested interests are able to manipulate regulatory legislation • Volume and complexity of laws • Inefficiency and lack of accountability within the regulatory bureaucracy • Lack of expertise and knowledge on the part of regulatory staff • Different layers of government imposing duplicative, conflicting and excessive regulation

  6. How to go about regulation • Regulation should be synthesized with objectives and targets for good governance • The processes should be transparent and non-discriminatory • Regulatory procedures should be backed by proper legislation • Laws and procedures should be clear and easily understandable • Regulatory legislation should take into account the interests of all stakeholders • All regulatory actions and regulatory procedures should be publicly available

  7. What does an effective regulation require • Promotion of ethics and culture • Planning and performance monitoring • Internal accountability • External accountability • Evaluation

  8. Achieving these goals for effective regulation is contingent upon capacity, integrity and accountability of the regulators

  9. Capacity • The regulatory staff knows the law, have resources to enforce and is able to take punitive action based on sound reasoning • Capacity of regulator to carry out effective regulation is a function of • Legal framework • Enforcement powers • Regulatory infrastructure

  10. Legal framework • Rules and laws must take into account ground realities and local conditions • Legislation must give protection to regulators to discharge there regulatory duties • Responsibilities of the regulators must be clearly defined and set out by law • Laws must be consistent and avoid duplication and complexity

  11. Powers of regulators • Power to investigate matters pertaining to regulation and obtain data • Ability to take action to ensure compliance with regulation • Power to initiate or refer cases for prosecution • Power to impose sanctions and seek orders from courts or tribunals

  12. Regulatory infrastructure • Cooperation between various regulatory bodies • Regulator should have adequate resources to perform its functions • Staff of the regulator should be provided with the requisite skills and knowledge of law

  13. Integrity • The staff of the regulator observes highest professional standards • It includes: • Avoidance of conflicts of interest • Appropriate use of information obtained during the course of duty • Observance of procedural fairness • Observance of confidentiality and secrecy

  14. Integrity can be promoted by: • Adoption of consistent and clear regulatory processes • Promotion of ethical values in regulation • Ensuring independence of regulatory authorities • Fair remuneration of regulatory staff

  15. Accountability • Regulator being responsible or answerable to stakeholders while upholding ethical standards and demonstrating financial responsibility and operational transparency • We need to have a system of accountability of the regulator

  16. System of accountability should ensure: • Protection of legitimate rights of all stakeholders • A review of the decisions • Accountability to public in exercise of powers and functions • Planning and performance monitoring • Public disclosure of policies and procedures

  17. Challenges • Achieving a balance between performance, fairness and usage of funds • Achieving depth and breadth of skills required • Performance management and review • Objective evaluation

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