SEC outlines 2020 strategy

• Capital Market Strategy aims to reclassify Sri Lanka as an emerging market to become an attractive portfolio investment destination

The Securities and Exchange Commission (SEC) has released its 2020 plans to redefine its role as a responsive market regulator by outlining strategy to strengthen the regulatory and governance environment, raise standards, manage risks and create competitiveness in capital markets. 

Focused capital market development initiatives have historically accelerated economic growth and contributed to financial sector stability in emerging economies. Such initiatives proved critical to economic growth amongst regional signifiers including Vietnam, Thailand, Malaysia, Korea, India, and China and those outside the region including South Africa, Poland, Morocco, Hungary, and Brazil.

In Sri Lanka, capital market development as measured by market capitalisation as a percentage of gross domestic product is 25.3%. In contrast, from amongst the above contenders, South Africa, and, closer to home, Malaysia and India, reflect ratios of 234.0%, 129.3%, and 72.4% respectively.    

“In shaping the Capital Market Strategy 2020, we are influenced by the need for regulatory strength and readiness and our ability to effectively deliver governance, enforcement and compliance. The current realities of capital markets necessitate an increasingly more proactive and responsive regulatory action,” the report said. 

The Capital Market Strategy 2020 proposes to enhance and maintain high levels of professionalism among persons engaged in capital market activity by enhancing the guidelines on fitness and propriety applicable to market institutions and market intermediaries. At the same time, it is envisaged that the qualification framework of the SEC would undergo extensive revision, allowing for multi-tier licensing and continuous professional development, it added. 

“The SEC envisions a vibrant capital market attracting strong issuer participation from both the private sector and State-Owned Enterprises (SOEs) as a preferred source of long-term fundraising. Representations have been made to the Government of Sri Lanka in exploring the potentiality of invigorating the capital market through the listing of SOEs with compelling investment propositions.”

To strategy also aims to increase portfolio choice of investors, the SEC is developing a sequencing framework for the introduction of new products ranging from Real Estate Investment Trusts (REITs) and Exchange Traded Funds (ETFs) to Financial Derivatives. The SEC would enable the introduction of a multi-asset offering for investors by spearheading policy formulation in order to facilitate related rule making by the CSE. 

“The proposed demutualisation of the CSE is a central initiative of building domestic capability through the re-orientation of the CSE to pursue strategic and commercial interests. Demutualisation segregates ownership and management of the CSE in order to adequately represent the interests of all capital market stakeholders. The CSE’s business model would be reviewed in the process to optimise financial sustainability. Institutional competence and global acceptability of the CSE is expected to be enhanced through demutualisation, the modality of which is currently being finalised.” 

Over the medium to long term, far-reaching reforms proposed as part of the Capital Market Strategy 2020 would support the proposition to Morgan Stanley Capital International (MSCI) to reclassify Sri Lanka as an emerging market, providing for broader visibility as an attractive portfolio investment destination, the report noted.