Government of India Volume I: Analysis and Recommendations

STRUCTURE OF THE REGULATOR
Table of Recommendations 3.4 Appointment conditions for board members
1. Duration of employment: All members of a board (including the chairperson) would have a fixed term of five
years, subject to a retirement age for executive members. The age of retirement for executive members must
be equivalent to the age of retirement for the equivalent senior-most Government positions.
2. Protection of entitlements: The salaries and other entitlements of the members of the board should be fixed
by the Government. However, once they are set, they should not be varied to the detriment of the incumbent
members of the board, or require further approvals from the Government.
3. Terms of removal: The draft Code provides for both, the reasons for which a member may be removed and
the process by which removal will take place. This may be done for:
◮ Regular Reasons: Completion of term, reaching the prescribed age limit, declaration of insolvency
and conviction by a criminal court which involves imprisonment.
◮ Special Reasons: Incapacity (physical and mental), behaviour unbecoming of the position held, conviction
by a criminal court which does not involve imprisonment and dereliction of duty. For removal
under special reasons to take place the Government should establish a judicial committee (under the
supervision of the Supreme Court), which will investigate whether removal is necessary on the suggested
grounds and create a public report on the issue.
4. Re-appointment: Members of the board can be reappointed for another term of five years as members. This
provision will however not be available for the chairperson of the board who cannot be reappointed. There
will be no automatic re-appointments - the incumbent member will be considered by the selection committee
alongside other prospective candidates. If the selection committee finds the member suitable, he/she will
be short-listed and the Government then may choose to reappoint such members. The Commission believes
that this will ensure that the tenure of members is not extended as matter of course.
Table of Recommendations 3.5 Law governing board meetings
The principles governing the following matters must be covered by the draft Code:
1. Frequency of meetings;
2. Quorum;
3. Method of taking and recording decisions;
4. Decisions without meetings;
5. Legitimacy of decisions; and
6. Conflicts of interest.
The Commission is of the view that very high regard should be given to the need for
transparency in the board meetings of the regulator. While there may be some specific
decisions or deliberations of the regulator which may have commercial implications and
may not be released immediately, this should not be unduly used as a reason to deviate
from the general principle of transparency. The draft Code will therefore require the
regulators to be transparent about meetings as far as possible and when any information
is kept confidential, reasons for doing so must be recorded. For instance, pending
investigations and queries about violations by a regulated entity should be kept outside
the purview of publication as they have an impact on the reputation on the institution
without a finding of violation of laws. However, the decisions of the regulator should be
published to provide information to the regulated entities on the standards of conduct
expected by the regulator.
There is also a need for a formal mechanism to evaluate the regulator’s compliance
systems. This will be achieved by setting up a review committee that will be comprised
only of non-executive members of the board (see Table 3.6).
3.4. Advisory councils of the regulator
The regulators will be responsible for regulating a large and rapidly developing financial
system in India consisting of a large number of stake-holders, including financial service
providers, intermediaries, consumers and other users of the financial system. It is not
possible to ensure that all these stake-holders are adequately represented at all times
24 FINANCIAL SECTOR LEGISLATIVE REFORMS COMMISSION