Institutions must not do away with self-regulation even when the government appoints an independent regulatory body, according to a former head of India's markets regulator.
“Self-regulation has an important role to play even if the government steps in,” said Chandrashekhar Bhaskar Bhave, former chairman of the Securities and Exchange Board of India, at the Corporate Governance In Investing seminar organised by CFA Society India in Pune. “That's because nobody is aware of the changes taking place more than the members themselves and it will take time for the government to catch up.”
Bhave's comments come at a time when the government is in the process of stripping the self-regulatory powers of auditors and credit-rating firms that have been caught off guard or found colluding with company officials. The Institute of Chartered Accountants of India, the regulatory body of auditors, had its wings clipped and certain powers were transferred to a superior National Financial Regulatory Authority in the wake of the IL&FS crisis.
That's why Bhave stresses on proactive self-regulation. Such powers must be exercised to set reasonable and contemporary guidelines ahead of time even if the government steps in, he said.
“If you don't exercise self-regulation and there is a public outcry scenario of ham-handed regulations [coming into force later], you will complain that rule makers do not understand what business is all about. They are making impractical rules," Bhave said. “Then, the regulator will push back and say, ‘You guys din't do anything when you had an opportunity to do it. Now the disaster is on my hand and I need to handle that'."
Watch| CB Bhave On Role Of Regulators In Ensuring Good Corporate Governance
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