TISL lists requisites for SEC’s forward march

With a new Head being appointed to the Securities Exchange Commission (SEC), Transparency International Sri Lanka (TISL) yesterday in a statement reiterated that effective regulations, embodying international best practices and strict enforcements are essential features of a sustainable, vibrant and investor confidence building stock exchange, which yields commensurate returns to all market participants.

It said an independent and capable SEC, operating without undue influence exerted by the Executive is yet another essential feature of an effective and attractive Securities market.

“Within such an effective and attractive securities market there should be no open opportunities for insider dealings, market manipulations, pump and dump deals and other regulatory violations," TISL said.



"The market mechanisms must ensure open, transparent, prepared to accepted standards and independently verified financial information, with specific and clear disclosure requirements of related party transactions, directors’ interests, major transactions and solvency,” TISL added.

The listed entities should, in addition, be managed by individuals who are not deemed to be persons who fail to meet the qualifications relating to “fit and proper persons”, it added.

“The independent regulator must be watchful that unacceptable and unprofessional conduct of market participants will not lead to the confidence of the investors being eroded. Whenever any non transparent transactions, violations or manipulations are observed or reported, the Commission should impartially investigate and reach an independent judgment on the action to be taken against any guilty parties. Compounding of serious violations by mere payment of insignificant to level of violation, penalties is also an unacceptable practice and may by itself promote a continuity of such actions by errant market participants,” TISL said.

It also recalled former SEC Chairman Thilak Karunaratne had resigned on principle; stating that he was unable to complete high profile investigations being conducted by SEC due to pressure from both the government and the high net worth investors. He resigned from his role as Chairman of SEC rather than be subjugated by the corruption in the system.

“In this scenario there are questions raised by analysts as to whether SEC will now complete the ongoing investigations with the required degree of diligence, professionally and with independence. There are further questions as to whether the process initiated by the SEC under Karunaratne to reform the regulatory framework to enhance the effectiveness binding regulations and alignment them with internationally accepted best practices, especially promoting independent equity research and rating of new issues will be continued with the same degree of commitment,” TISL said in its statement.

TISL also said its statement serves to highlight to the Executive  and the bureaucracy, the expected due accountability with which they must act in the current circumstances, especially in giving positive market signals that institutional independence, professional and effective regulatory control will be continued by the SEC.

“The uncertainty in the market, a myriad of complex issues impacting on the Sri Lankan securities market, and attempts to stall the prosecution of white collar crime may eventually lead to a lack of confidence. In the event such an environment emerges in the short term, it will even negatively impact international risk ratings, inward investments and lead to perceptions linked to the fairness, application of the rule of law and justice systems, these being essential ingredients in the risk ratings,” TISL said.

TISL has called upon the Government to give serious consideration to take all necessary steps without undue delay to resolve the present situation in a manner that will not negatively impact on market confidence and lead to retaining the attractiveness of Sri Lanka as an investment destination. This is a priority, especially in the context of the need for annual inward investments of around US$ 4 billion to finance the projected savings gap in realising sustainable growth targets of 8-10%.