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International human rights law lays down obligations that States assume by being part of the international community and parties to various international treaties and conventions. These obligations include – respect, protection, promotion, and fulfillment – of the human rights of all persons.
Drawing from the body of human rights, this article makes the case that regulators – especially those in the financial services sector – have 3 cardinal obligations. The various laws that constitute the various regulators lay down the functions and objectives of the regulators. This article makes the case that these functions and objectives can be reduced to 3 obligations, which should guide the work of regulators.
The 3 Cardinal Obligations
The Obligation to Protect: The primary role of a regulator is to maintain the safety and soundness of the industry that they regulate. This obligation includes implementing and enforcing prudential, protective (consumer protection), structural, and organizational controls. It is perhaps the most prominent among the three and is codified in the various laws that provide for the mandates of the regulators.
For example, the Capital Markets Authority (CMA) Act provides that the function of the Capital Markets Authority is to protect investor interests – which may be classified as protective controls. The Bank of Uganda Act also provides that the function of the Central Bank is to supervise, regulate, control, and discipline financial institutions – which may encompass among others, prudential and organizational controls geared towards ensuring the soundness of the financial system.
It is imperative to note that for a regulator to discharge this obligation effectively, it is critical to adopt a systemic risk perspective as a key driver. This would imply that the approach to supervision and regulation would be focused largely on those matters that go to the root of the sanctity of the sector(s). It would also imply that the approach to the interpretation and implementation of regulations would take a purposive rather than a literal approach.
The Obligation to Promote: A regulator is pivotal to the growth of an industry. They inspire confidence in the market and reinforce the efforts of sector players in driving the entrenchment of products and services. One such way in which a regulator discharges this obligation is through consistent implementation of regulation as well as proactive enforcement mechanisms that address errant or illegal market conduct that may derail confidence. This obligation is also codified in some laws, for example, the CMA Act, which provides that one of the objectives of the Authority is to promote market confidence and to carry out investor education.
The Obligation to Develop: While this obligation may be confused with the preceding obligation, there is a distinction. It is a forward-looking obligation that tasks a regulator to be an enabler of growth, scale, and innovation in the industry, rather than playing catch up to an ever-evolving industry. Indeed, the CMA Act highlights this obligation when it provides that one of the functions of the Authority is to develop all aspects of the capital markets with emphasis on the removal of impediments to investments. One such way in which regulators in the financial services sector in Uganda have been discharged this role is through driving the financial inclusion agenda – which is ultimately driving innovation in digital financial services, away from the traditional financial services model.
Conclusion
The functions/duties of a regulator are well known. This article is therefore not an attempt to highlight what they are. Rather it is an attempt to condense this ever-evolving body of functions into 3 cardinal obligations, which would form the compass that guides the philosophy and agenda of a regulator. It would follow then, that a regulatory intervention that is not intended to protect, promote, or develop would perhaps be outside of the purview of the regulator.
Disclaimer: “The views and opinions expressed on the site are personal and do not represent the official position of Stanbic Uganda and Khulani Capital.”
