Last week I was lucky enough to be in Seoul, where I was a
member of a panel discussing the governance of regulators at the
OECD's annual Asian Round Table.
When you consider the impact – for good or ill –
that regulators can have on those they regulate, the way they are
governed can make a significant difference.
In a sense, regulators are a sort of 'second board' for
the organisations they regulate. When run well, they can provide a
clear and stable framework within which those organisations can
operate. Run badly, they can keep changing direction and fall prey
to the temptation to micro-manage.
Many of the governance issues that regulators face are exactly
the same as those faced by 'proper' boards. For example,
the question of how to strike the right balance between
independence and expertise is an issue for many regulators.
On the one hand, there is a real benefit in having people at all
levels of the regulator who have experience of working in the type
of organisations they are regulating. It means they are better able
to understand the impact of their actions and what sort of
regulation is most likely to lead to a positive response.
On the other hand, there is the perception – and, indeed,
a real risk – that such people might be unwilling to take
tough action when needed either because they will subconsciously
side with those they regulate, or because they want to leave open
the option of a future career in the sector.
Getting the balance right is a challenge. One of the company
regulators at the OECD event said that the government had
introduced a rule banning their staff and directors from being
employed by any company for two years after they left. Although
intended to address concerns about independence, it had made it
impossible to recruit anyone with any experience and left current
staff feeling trapped and disaffected.
Independence from government is also a major issue for
regulators. If in this analogy the regulator is the board, then the
government is the majority shareholder.
There is general agreement that it is better for regulators to
operate at arm's length from government, to reduce political
interference in operational matters. But just because the
controlling shareholder does not sit on the board, it does not mean
they do not exert influence.
Knowing that government has the ability to approve or remove
your powers, funding or you personally – as effectively
happened to Martin Wheatley of the FCA last year – is bound
to affect how you think about things.
As with other aspects of independence, it is a question of
balance. Regulators need to be politically aware in order to
operate effectively. But they also need to have a culture and
consistency of approach that prevents awareness becoming simple
expedience. Because political expedience in a regulator can easily
lead to short-term decision-making that may undermine longer-term
objectives and unnecessarily complicate the lives of those they
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
With a view to promote corporate transparency and prevent misuse of corporate vehicles for illicit purposes such as corruption, tax evasion, money laundering, the Financial Action Task Force ("FATF")...
An assignment of rights under a contract is normally restricted to the benefit of the contract. Where a party wishes to transfer both the benefit and burden of the contract this generally needs to be done by way of a novation.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).