Summary of SRO
Advantages of SRO
1. Efficient regulation since the new organisation will be less bureaucratic.
2. The organisation will be manned by experts from the industry so they have more knowledge of how to regulate the industry.
3. The revenue generated by their functioning (for example issuing certificate for films) will be used for the welfare of industry only.
4. Will increase the overall confidence of investors but cutting red tape and lead to enhanced FDI and private investment.
5. It will build a culture of trust and will eventually lead to a right step in development of civic political culture in India from the current mix of subject-participant culture.
Challenges of SRO
1. Self regulation (SR) concept is not very prevalent world over perhaps because of the inherent conflict of interest. Issues will always remain of alleged bias because often times a substantial source of revenue is
membership fees.
2. If SRO is not empowered enough to enforce its penal actions then it is virtually ineffective. One way Self regulation can work is if non compliance by penalized orgn. results in exclusion from the sector/business. But India has a long way to go before adopting this governance measure.
3. Sometimes the area in which SRO is operating may overlap with other sectors so co-ordination with other regulators become essential. SRO cannot have that much coordination with state regulators. For example, Micro Finance Institutions may be self regulated but they may also gave operations in capital markets and insurance sector. So, the SRO overseeing MFI may not cooperate as much with SEBI, IRDA as desired.
Examples of SRO
India : NBA for news, SRO for Microfinance (Please add name)
US : MPAA (Films)
Conclusion
We will need to have the transition to SR in a smooth and endogenous manner. It has to be bottom up an indigenous development and not imposed from above or imported from outside. In short the transition has to be sustainable.
How can self regulation be made effective?
• Authority: Legislative or delegated regulatory authority to create and enforce its own policies and rules, subject to formal government oversight.
• Governance: Strong governance mechanisms, including focus on independent boards (that, among other things, counterbalance the influence of “regulatory capture”), transparency, and adherence to a defined process for obtaining public input on rule-making initiatives.
• Conflict management: Effective and consistent management of inherent conflicts of interest, including transparent mechanisms for their resolution.
• Supervision: Defined and transparent processes and procedures for overseeing and regulating the activities of its members, including the establishment of clear standards of conduct and correlated and consistent application of consequences for violations.
• Enforcement: Adequately funded enforcement program that works to help regulation, in conjunction with governmental authorities, while keeping up with market activities and trends, and that applies the law and its own process in a consistent manner while providing due process protections to those subject to its investigations.
• Regulatory database: Maintenance of a current database of information about regulated persons that is accessible to public and that includes all relevant customer complaints, disciplinary history, and legal and regulatory actions taken against such persons.
• Innovation: Development of policies and rulemakings that draws on the specialized expertise of those within the self-regulatory organization and allows for the ability to regulate “ahead of the curve” while encouraging and supporting fair, efficient, and orderly markets.
• Dispute resolution: A customer dispute resolution process that employs consistent use of fair and transparent policies and procedures that balance efficiency with investor protections while also protecting the civil rights of the accused.
PS : The SRO concept is most popularly used in the capital market. But the points mentioned above can be applied across the board.
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