6th%20Asian%20Roundtable%20on%20Corporate%20Governance%20Theme%20II,%20Session%202%20Ensuring%20Capacity,%20Integrity%20and%20Accountability%20of%20Regulators%20and%20Supervisors%20Jaweria%20Ather%20Securities%20and%20Exchange%20Commission%20of%20Pakistan%20Seoul,%202-3%20November%202004

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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
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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

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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

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Why regulate? (contd)

• 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

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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

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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

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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
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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

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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

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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

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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

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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

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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

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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

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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

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Challenges

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