Government of India Volume I: Analysis and Recommendations

STRUCTURE OF THE REGULATOR
Table of Recommendations 3.3 Types of members on the board of the regulator
1. Chairperson of the board
2. Executive members, including a set of designated administrative law members
3. Non-executive members
4. Government nominees
this category of members, some persons will be designated as administrative law members. Administrative
law members will be responsible for:
(a) Reviewing the performance and carrying out the oversight of a designated set of employees
of the regulator, referred to as administrative law officers; and
(b) Reviewing the decisions taken by the administrative law officers.
The executive members will devote their entire time to the management of the regulator and will
not be permitted to take up any other employment during their appointment. These members
will be responsible for the oversight of the regulator’s personnel, except for administrative law
officers who will be monitored only by administrative law members.
3. Non-executive members - This category will consist of persons who are experts in the fields of
finance, law, economics, etc., and are appointed to the board on a part-time basis. They will
not be involved in the day to day functions of the regulator. Non-executive members may take
up other engagements but will have to manage conflict of interest issues when participating in
board meetings.
4. Government nominees - The Government will have the right to nominate ex-officio members
on the board of the regulator. These members will represent the perspective of their departments/ministries
or other regulators in the functioning of the regulator.
The Commission believes that it is crucial for the draft Code on regulatory governance
to lay down the functions and powers of each type of member on the board of
a regulator. Accordingly, the law will state that the chairperson and executive members
are responsible for the day to day functioning of the regulator. The role of the administrative
law members will be to focus on the regulator’s adjudication and administrative
law functions. Having a category of non-executive members is a continuation of the
present system of appointing part-time members on the boards of financial regulators.
Such non-executive members will provide two important benefits to the management of
the regulator:
1. Since they will not be employees of the regulator, it is expected that they will be neutral observers
in the functioning of the regulator and alert the Government of any violations of law by the regulator.
2. Such members should have expertise in finance and allied fields, and preferably also some experience
in providing financial services. This will bring in expertise and information about the
financial sector to the board of the regulator.
Unlike ordinary civil servants, board members are appointed for a limited time and
do not have a guarantee of continued employment. Therefore, one of the crucial requirements
of independence is that the members should be protected from pressure through
change in their terms of appointment.For this reason, the Commission recommends that
the draft code should provide the conditions of appointment of members - duration, entitlements,
system of removal and conflicts of interests (see Table 3.4).
3.3. Functioning of the board
The functioning of the board of regulators should primarily be left to the rules and regulations
formed by the regulator. However, in the interest of accountability, certain principles
must be laid down to govern the actions of the board. The Commission is of the opinion
that best practices of conducting the functions of deliberative bodies should be incorporated
in the functioning of the regulator. The recommendations with regard to what
should be contained in the draft Code to govern board meetings is provided in Table 3.5.
FINANCIAL SECTOR LEGISLATIVE REFORMS COMMISSION 23