(…Continue from last two posts)

Role of the review committee

The Commission recommends that the non-executive members of the board of a regulator form a special committee called the review committee. This committee will discharge the following functions:

1. Oversight of compliance of the regulator with the governing laws;

2. Maintaining whistle-blower policies about violations of process within the office of the regulator;

3. Ensuring that all board meetings are held in compliance with the law and all meetings are minuted and votes are recorded by creating a report;

4. Creating a system to monitor compliance of the oice of the regulator with the decisions of the board through reporting systems; and

5. Reviewing all risk management policies of the board of the regulator.

The review committee will make its observations in a report which will be annexed to the annual report of the regulator.

The objective of this procedure is to ensure greater transparency in the functioning of the board of the regulator.

These recommendations are resulted into clause 43 of the draft code. The members of the board of a Financial Agency must appoint at least two non-executive members from the board of the Financial Agency to constitute a review committee to review whether –

(a) the Financial Agency is in compliance with applicable laws;

(b) the bye-laws of the board of the Financial Agency promote transparency and best practices of governance;

(c) the Financial Agency is in compliance with the decisions of the board of the Financial Agency; and

(d) the Financial Agency is managing risks to its functioning in a reasonable manner.

The review committee must maintain a system by which any person may communicate to the review committee, any incidence of –

(a) violation of laws by the Financial Agency;

(b) theft or misappropriation of resources of the Financial Agency by any person;

(c) abuse of powers of the Financial Agency by any officer, employee or agent within the Financial Agency; or

(d) violation of any decision of the board of the Financial Agency by any officer, employee or agent of the Financial Agency.

The review committee will make a report, at least once every financial year, of its findings to the board of the Financial Agency and the report will be attached with the annual report of the Financial Agency.


Performance measurement and reporting

The allocation of resources by the regulator is intrinsically tied to the performance of the regulator. Therefore the Commission recommends the following principles for the measurement of the regulator’s performance and financial reporting:

1. The regulator should create two annual reports:

(a) Audited report which is comparable to traditional financial reporting; and

(b) Performance report which incorporates global best practice systems of measuring the efficiency of the regulatory system.

2. The performance report should use modern systems of measuring each activity of the regulator as objectively as possible.

3. Performance systems must require the regulator to create and publish performance targets.

4. All performance measures must be published in the annual report.

5. Performance measurement system should be reviewed every three years to incorporate global best practices.

Measurement systems for assessing the performance of regulators should include an assessment of the regulator’s processes on metrics such as, the time taken for granting an approval, measurement of efficiency of internal administration systems, costs imposed on regulated entities and rates of successful prosecution for violation of laws. Adopting such an approach would constitute a departure from the present system where most financial regulators focus on measuring the activities of regulated entities and financial markets as a standard for their own performance. The Commission noted that while these measurements are important, measurement of various activities undertaken by the regulator will provide much greater transparency and accountability.

The measurement of activities of the regulator also needs to be tied with the financial resources spent by the regulator to carry out those activities. A system which merely measures the expenses of the regulator was therefore considered to be inadequate and the Commission recommends a move towards tying the measurement of regulatory activities and the expenditure incurred for it as a crucial link for improving regulatory governance.

Clause 76 of draft code requires the Financial Agency must develop a system to measure the efficiency with which that its function was discharged. The Financial Agency must measure its efficiency in relation to its functions in a reasonable and objective manner, for each financial year. The Financial Agency must determine goals for the discharge of each function. The Financial Agency must, at the end of each financial year, prepare a report comparing information with the goals that were set for the financial year. At least once every three years, the board of the Financial Agency must review the quality of the report of the Financial Agency with the requirements of this section. The reports under this section must be published with the annual report of the Financial Agency.

Clause 77 ask the board of the Financial Agency must prepare and submit to the Central Government an annual report within ninety days from the end of a financial year. The annual report must give a true and full account of the performance of the Financial Agency, such as:

(a) a review of the Financial Agency’s activities, (b) all information that is necessary to understand the discharge of functions and the achievement of the objectives, (c) all information that the Financial Agency is required to publish, (d) a statement of the deliberations, accompanied by the records of meetings of the Financial Agency; (e) a statement indicating any statutory obligation  not complied with, and reasons for such non-compliance; (f) a statement by the chairperson of the Financial Agency, in relation to the activities and performance of the Financial Agency; (g) a statement of major activities the Financial Agency will undertake in the subsequent financial year; and (h) a statement which any member of the board may wish to include.

The accounts of a Financial Agency must be audited annually by the government auditor as per clause 78. Further under clause 79, Every Financial Agency must arrange for a review of its performance and operations by a team of experts external to that Financial Agency. The board of the Financial Agency must, within one hundred and eighty days of the review – (a) determine a programme of action to implement the report of the review, (b) publish the report of the review; and (c) publish the programme of action.

The executive summary of the report, conclude in these words; “The draft Code establishes certain elements of the functioning of board meetings, so as to ensure adequate oversight of the board over the organisation, and an emphasis on transparency.

Please note: I welcome your comments and feedback. This blog post is not a professional advice. Readers may share this post on social media by using buttons given here.


No professional query in comments (but in mail). Only academic discussion here. Comments moderated. Sometime, I reply to your mail ID.

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