TISL urges govt. to resolve crisis at SEC

Transparency International Sri Lanka (TISL) yesterday called upon the government to take necessary actions to resolve the present situation at the Securities and Exchange Commission (SEC) in a manner that will not negatively impact on market confidence.

Sri Lanka’s capital market saw the resignation of two SEC Chairmen, namely Indrani Sugathadasa and Tilak Karunaratne, in the span of just eight months. Sugathdasa told media that she resigned to ‘uphold her principles’ while Karunaratne said that he was pressurized by the authorities and powerful investors to step down.

Following the resignation of Karunaratne, Dr. Nalaka Godahewa was appointed as the SEC Chairman, who, apart from his stints in public and private sectors, is an investor and a Chairman of a listed company controlled by a powerful investor. Market analysts and legislators have already pointed out this as a conflict of interest.

“With a new head being appointed to the Securities Exchange Commission (SEC), Transparency International Sri Lanka (TISL) reiterates 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,” TISL said in its statement.

“An independent and capable Securities Exchange Commission, operating without undue influence exerted by the Executive is yet another essential feature of an effective and attractive securities market,” it added.

The statement further noted that the former SEC Chairman Tilak Karunaratne resigned on principle, stating that he was unable to complete high profile investigations being conducted by the SEC due to pressure from both the government and the high net worth investors.

“He resigned from his role as the Chairman of the SEC rather than be subjugated by the corruption in the system.

In this scenario, there are questions raised by analysts as to whether the 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 of 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,” the statement noted.

It also highlighted 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.

The Sri Lankan chapter of the global anti-corruption agency also said that in the context of the need for annual inward investments of around US$ 4 billion to finance the projected savings gap in realizing sustainable growth targets of 8-10%, the authorities should seriously consider retaining the attractiveness of Sri Lanka as an investment destination.