6th Asian Roundtable on Corporate Governance
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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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What is regulation

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


What is regulation

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


Why regulate

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


Why regulate cont d

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


Common problems in regulation

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


How to go about regulation

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


What does an effective regulation require

What does an effective regulation require

  • Promotion of ethics and culture

  • Planning and performance monitoring

  • Internal accountability

  • External accountability

  • Evaluation


What is regulation

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


Capacity

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


Legal framework

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


Powers of regulators

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


Regulatory infrastructure

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


Integrity

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


Integrity can be promoted by

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


Accountability

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


System of accountability should ensure

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


Challenges

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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