Government of India Volume I: Analysis and Recommendations

FUNCTIONS AND POWERS OF THE REGULATOR
Table of Recommendations 4.6 General executive functions of a regulator
The Commission recognises that regulator must carry out certain general executive functions on a routine basis.
These include:
1. Grant of approvals, including licensing or registration;
2. Inspections, which may be routine or special;
3. Proving violation of regulations to the judicial officers (by leading evidence);
4. In the case of successful prosecution before the administrative law department, suggesting enforcement actions;
and
5. Compounding of offences with the involvement of the administrative law department.
of executive function may place an undue burden on regulated entities and financial markets.
Long pending investigations create uncertainty for businesses. When news of ongoing
investigations leaks, it may inflict damage to the reputation of any financial firm.
Similarly, injunctions placed on businesses under investigation have strong economic
implications and should be placed for the shortest possible period. These problems can
be checked by putting in place legal measures that require investigations to be finished
within specified time, and kept confidential from the public.
The Commission notes that the overall approach of the draft Code should be to provide
for strong executive powers, balanced with greater transparency and accountability,
to prevent abuse. Executive functions of regulator do not have standardised statutory
checks under present legislations. Therefore, the Commission recommends that adequate
transparency requirements, checks and judicial oversight be placed on the exercise
of executive functions by regulator. This will also reduce allegations of possible bias
and arbitrariness to the minimum.
It is also important to ensure that there is no overlap in the legislative and executive
functions of the regulator. The executive should not be allowed to issue instructions of a
general nature to all regulated entities or a class of regulated entities. Such instructions
should only be possible after the full regulation-making process has been followed.
Table 4.6 sets out the areas in which the Commission has made specific recommendations
regarding the exercise of executive powers.
4.2.1. Permission and approvals
Granting permissions to start a business is the core function of any regulator. This is also
the first barrier to entry for new entrants to any business. Each new business permission
also increases the burden on the regulator as it increases the number of entities it has to
monitor. The draft Code must grant the regulator discretion to approve or reject applications.
The Commission has decided that the power must be exercised in a manner guided
by regulations. As far as possible the discretion of the regulator should be guided through
an underlying duty to explain. The power of the regulator to reject applications should be
balanced with the requirement for allowing legitimate parties getting approvals in a time
bound manner for smoother functioning of the regulatory system. Table 4.7 summarises
the recommendations of the Commission for governing the procedure for disposing applications.
4.2.2. Information gathering
Regulator requires information about the activities of their regulated entities. It may also
require information from private sources and other government agencies. At present,
a diverse array of mechanisms are used by firms to submit information to regulatory
FINANCIAL SECTOR LEGISLATIVE REFORMS COMMISSION 33