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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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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
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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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