Far reaching new Securities Exchange Bill gazetted

Far reaching new Securities Exchange Bill gazetted

Monday, 27 November 2017 00:36

New legislation empowers SEC far greater and deals more comprehensively with market misconduct and provides protection to whistle-blowers

The far reaching and comprehensive Securities Exchange Bill has been published in the gazette by the Minister of National Policies and Economic Affairs last week and will be presented to Parliament shortly.



The Bill aims to establish the Securities and Exchange Commission of Sri Lanka; to regulate market institutions, public offers of securities, market intermediaries; to deal with market misconduct; and to meet the challenges encountered by securities markets in an effective and efficient manner and to repeal the Securities and Exchange Commission of Sri Lanka Act, No. 36 of 1987.



The proposed Bill gives more powers to the Commission and deals more comprehensively with market misconduct and provides protection to whistle-blowers.



The new Bill which will replace the Securities and Exchange Commission of Sri Lanka Act, No. 36 of 1987 lays down measures to deal with market misconduct and to meet the challenges encountered by securities markets in an effective and efficient manner.



It encompasses the Establishment of the Commission, its powers, duties and functions of the Chairman, and staff; market and market institutions, establishment, operation and regulation of exchanges, clearing house, central depository, issue and trading of listed and unlisted securities, protection of clients assets, establishment of a and role of recognised market operator.



It also extensively deals with market misconduct, lists prohibited conduct, and insider trading.

Funds of the Commission, and Fund to provide Compensation to investors , provisions relating to the Institutional Framework ; Provisions relating to the Enforcement Mechanism.



According to SEC sources the new Act while some commended the proposed amendments others claimed this was too draconian, stringent and not necessary for a developing market such as Sri Lanka. Some suggested that the new provisions will impede market violations and that an element of market malpractice was necessary to drive the market.



Despite these baseless arguments, SEC believes the new Act will form a sound foundation for capital market regulation and additionally expand our scope with enhanced enforcement capabilities. Furthermore it will introduce powers for civil and administrative sanctions and will also include more provisions to regulate hitherto unregulated capital market intermediaries and products and ensure better safeguard of investor interests.

The passage of the proposed Act would not only complete a longstanding initiative of the SEC, but also decisively define our ability to engage in effective and holistic regulation of the capital market, according to the SEC.

SEC last year and early this year invited feedback from stakeholders including the general public to foster transparency in the law making process and induce meaningful contributions from all.



Extensive public consultation was conducted with respect to the draft Securities Exchange Act in early 2017 both in the interest of maintaining transparency throughout the legislative process and that of ensuring the enduring relevance of the legislation promulgated today to market participants.



“Having received the insights and feedback of a cross-section of regulates and other market participants over the course of several weeks, we are confident that the present draft has greatly benefited from the consideration and incorporation of multiple perspectives during its formative stages,” SEC said.



“This will be a singular achievement as the Commission has been struggling to bring in a new Act since 2011,” SEC said whilst acknowledging the invaluable contribution made by the drafting committee headed by Kanag-Isvaran P.C.

SEC prunes down ex-officio members in Commission

Tuesday, 28 November 2017 00:00

Checklist of considerations when appointing Chairman and disqualifying commissioners
Commissioners eligible for reappointment for a maximum of two successive terms
Institute of Chartered Accountants nominee must not be engaged in auditing

The new SEC Bill has pruned down the number of ex-officio members in the Commission while when appointing the Chairman, the Minister has been provided with several factors for consideration. In the existing Act there are three ex-officio members – the Deputy Secretary to the Treasury, Registrar of Companies and President of the Institute of Chartered Accountants.

However, in the new Bill, the ex-officio slot has been reduced to one and confined to the Registrar of Companies.

The Treasury nominee and Chartered Institute nominee have been brought in as part of three nominated members. The Central Bank Deputy Governor is the other nominee who at present is an appointed member of the Commission by the subject minister.

The new Bill specifies the nominee of the Institute of Chartered Accountants must be someone who is not engaged in auditing as nominated by the Council of the Institute of Chartered Accountants of Sri Lanka. This, according to analysts, is to avoid any conflict of interest.

The areas of interests of the six appointed members to the Commission have been widened as well.

At present the six persons are drawn from the private sector, possessing professional expertise, wide experience and proven competency in the fields of law, finance, banking and business. These appointments can be made to facilitate a Commission with a multi-disciplinary capacity.

As per the new Bill, six persons from the private sector possessing professional expertise and standing in respect of matters relating to the securities market, special knowledge or wide experience and proven competency in the fields of law, finance, accounting, economics, banking or business are to be appointed by the Minister as members (hereinafter referred to as Appointed Members) in order to reflect the multidisciplinary character of the Commission.

The term of office of Commissioners remains unchanged at three years but the new Bill provides for them to be eligible for reappointment subject to a maximum period of two successive terms of office.

Whilst the existing Act does not specify the criteria for consideration when appointing the Chairman, the new Bill has been explicit.

They include the person’s integrity and standing and the likelihood of any conflict between the interests of the Commission and any interest which that person has or represents.

The new Bill is also specific as to when a Commissioner shall be disqualified such as a) is or becomes a Member of Parliament or a member of any Provincial Council or any local authority; (b) is or becomes a director, partner or employee of an entity licensed or registered by the Commission; (c) is or becomes of unsound mind or incapable of carrying out his duties; (d) is or has become an undischarged bankrupt; (e) is guilty of serious misconduct in relation to his duties; (f) has been convicted of an offence which involves moral turpitude and (g) abuses his position.

New SEC Bill vests power to appoint DG in Commission, not Minister

Tuesday, 28 November 2017 00:00

Analysts claim DG loses degree of independence and commission assumes certain level of executive role



In a departure from past practice, the new Securities Exchange Bill has taken away the authority of the subject minister in the appointment of the Director General and vested it in the Commission.

The Bill, which the Daily FT exclusively reported yesterday, states that the Commission shall appoint a Director General who shall be its Chief Executive Officer. Under the existing Act, the Minister shall, on the recommendation of the Commission, appoint a Director General of the Commission. The power to remove the Director General under the new Bill is also vested with the Commission as opposed to the Minister on the recommendation of the Commission.

Analysts said the Director General position is an important function of the SEC and has always been seen as being independent from the Commission. According to some analysts, the change proposed in the new Bill will dilute the independence of the Director General and also makes the Commission take on more of an executive role.

“The independence of the DG is maintained by virtue of the Minister appointing the DG and also removal with the Commission having no effective role. The existing arrangement preserves the independence of the DG who is the CEO. The new Bill stating that the Commission can appoint and can sack the DG means there is a degree of loss of independence on the part of the DG.

“This also lends the Commission the character of an executive. In most other markets, the Commission is a policymaking body and the DG runs the organisation and the new Bill dilutes this and goes against the grain of capital market regulation,” said an analyst.

The new Bill appears comprehensive on the position of the Director General. It states: “The Commission may remove from office the Director-General appointed under subsection (1) by a two-thirds majority having regard to any one of the following reasons - (a) that person’s integrity or standing; (b) the likelihood of any financial or any other conflict of interests in the affairs between the Commission and the Director-General; (c) that person becomes of unsound mind or incapable of carrying out his duties; (d) that person is guilty of serious misconduct in relation to his duties; or (e) that person is involved in any activity which may interfere with his independence in discharging his duties: provided that the Commission shall grant an opportunity to the Director-General of being heard, prior to such removal.”

Under the existing Act, the Minister may, on the recommendation of the Commission, remove from office the Director General appointed and such a removal shall not be called into question in any Court.

Securities Exchange Bill presented to Parliament
2017-12-06 14:01:24

The government today presented the Securities Exchange Bill to Parliament with the intention of setting up a commission to regulate the issuance of bonds, shares, stocks, funds and units.

The commission, which will be appointed by the subject minister, will include a majority of six members from the private sector.

The deputy secretary to the treasury, deputy governor of the Central Bank, a fellow member of the Institute of Chartered Accountants of Sri Lanka and the Registrar General of Companies will make up the remaining four members of the commission. (Yohan Perera and Ajith Siriwardana)

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