Regulating the regulators

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VIAIkram Sehgal
SOURCEBusiness Recorder
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Well performing regulators encourage innovation across the economy and enhance the growth of productivity through timely approval of measures, flexible approaches to new situations and a solid service orientation. Created by the legislature to implement and enforce specific laws, a ‘regulator’ or regulatory agency usually has quasi-legislative, executive as well as judicial functions. It serves two primary functions in the state: it implements the laws governing social and economic matters, such as income tax, environmental laws, occupational health and safety laws, real estate law, employment laws by issuing regulations and enforces them. The task a regulatory body needs to be defined as well.

Accountable to the legislature, the regular reporting of the discharge of its functions should be a major feature. A Regulator must efficiently and effectively discharge its responsibilities with integrity, honesty and objectivity while defining the nature of the policy it must cooperate transparently with other bodies to make itself more effective. The regulator must be held accountable but the process of its accountability must define how it is to conduct itself and how this will be assessed.

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Instead of ensuring an efficient regulatory regime in the country regulatory bodies have often been found entangled in various controversies and financial scams, their performance is anything but satisfactory in Pakistan. The regulatory mechanism in Pakistan is ranked at number 116 in regulatory enforcement among 126 assessed countries in the world. Conflict of interest is a major problem in Pakistan. Those appointed to regulate or oversee a particular industry or sector cannot work or be attached with any other commercial interest in any capacity. Conversely anyone who might be working with or is attached with any commercial entity in any capacity cannot join any Regulatory Agency for a stipulated period of time. Those who man Pakistan’s 18 regulatory bodies are also hired and fired at the whims of those in government. Conflicting interests make our regulators not only subservient to the dictates of the government of the day but other vested interests. Against all logic it is normal here for anyone attached to a particular industry or sector to be appointed a regulator. How can anyone in regulatory capacity oversee/regulate an industry/sector in which he/she was attached with before becoming a regulator? But it has happened. Nomination and appointment of the regulatory body’s head should be based on transparent and accountable process. Clear conflict of interest rules should be in place to enable independent behaviour while in employment and upon exiting.

The law must specify gap of a few years before a person in a regulatory agency is allowed to take up another assignment or a job. This is applicable in the Pakistan’s Armed Forces, government servants; the gap of at least two years is mandatory before anybody can take up another government job or any job in the commercial sector that relates to an activity that he supervised or monitored while in service. Consider those that man the Procurement Agency in the Armed Forces and then join the company selling weapons and equipment that he was evaluating and purchasing for the Armed Forces. Is it right that a person in any intelligence agency monitoring foreign private sector sensitive corporate entities in telecommunication etc., retires from service and then seamlessly joins the same company he/she was responsible in the concerned agency for monitoring? We should enforce a ban on regulators from joining firms they regulate for at least five years after leaving the agency. Appointments for members of regulatory authorities and commissions have been challenged in courts on many occasions. The conflict of interest may lead to the development of regulations to benefit an industry, special interest group or person, a reluctance to enforce regulations or giving of favoured treatment of the regulated group or person/s. The regulatory agencies over time can degenerate into protecting the organisations which they are supposed to regulate. Checks and balances must be put in place so that persons in responsible positions are not corrupted.

To ensure good governance and rule of law an efficient regulatory regime is extremely important. While most of our regulators do not perform well, not one of the many successive governments has made any serious attempts to improve the efficiency and institutional capacity of the regulators. They must be replaced through a transparent and open selection process with honest professional people to run them.

(The writer is a defence and security analyst)

(This news/article originally appeared in Business Recorder on March 15th, 2019)

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