1. 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

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