Legal and Enforcement
The Legal Division handles litigation, capital market legal policy initiatives and current regulatory functions. The Legal Division facilitates the institution of proceedings in Court and defends the interests of the Commission in Court as and when necessary. The Division is responsible for reviewing and proposing amendments to the SEC Act and other related laws and rules to ensure securities laws are in line with IOSCO standards and international best practices. Ongoing regulatory functions include advising the secretariat and the Commission on all legal matters, issue directives to regulatees and Listed Public Companies, administration of the Takeovers and Mergers Code and process approvals for global and regional funds investing in listed securities. Additionally the division drafts commercial agreements and engages in contract negotiations for the Commission. The Legal Division is entrusted with the responsibility of implementing enforcement actions against wrong doers for violation of securities laws , regulations and rules as determined by the commission.
The Corporate Affairs division is responsible for ensuring that investors are provided with material information in order to make informed investment decisions. The division reviews market disclosures and other information that listed companies are required to disseminate to the public to reduce asymmetry of information. The division conducts a Financial Reporting Surveillance Programme aimed at improving the quality of the financial reporting of the listed companies so that:
- The Listed Companies’ financial disclosures are clear, accurate and comprehensive.
- Investors can have confidence in the credibility of financial information provided by the listed companies.
- High quality financial reporting will contribute to the integrity of Sri Lanka’s Capital Market.
The Financial Reporting Surveillance Programme further involves a review of the financial reporting practices of Listed Entities for the purpose of forming a view on:
- The level of compliance with the Sri Lanka Accounting Standards (SLFRS) as specified in the Colombo Stock Exchange (CSE) Listing Rules.
- Whether any breaches of the SLFRS identified in those financial statements are likely to have an impact on the true & fair view of the financial status and are likely to be materially misleading to users in the context of information disclosed as envisaged under the SEC ACT and therefore require enforcement action.
- The transparency, clarity, comprehensiveness of financial reporting disclosure requirements and the overall quality of financial reporting by Listed Entities.
The division inquires and resolves complaints of investors as well as processing and approving off – the – Floor transfers of Securities. It is also responsible for approving the issuance of unlisted securities of Listed Entities under Section 29A of the SEC Act and considers/where appropriate recommends applications received under Section 28A of the SEC Act where Shares were allotted within a period of 12 months prior to obtaining a listing on the Stock Exchange. The responsibilities of the Division include receiving and collating input on policy issues including the undertaking of comparative surveys in order to ascertain the present status, including gaps, in the Capital Market based on such input. The Unit is also responsible for the analysis, formulation and recommendation of policies, monitoring of policy implementations and providing necessary assistance to other divisions in decision making. This also includes information relating to regional and international trends and developments as well. Further, Corporate Affairs Division provides recommendations to the Commission on Deferment of Suspension Applications received as per Enforcement Rules of CSE. Division also shares observations with the CSE relating to draft Prospectuses for Debentures, Initial Public Offerings and Rights Issue Circulars, however above is excluding observations on introductory documents.
The Supervision Division is responsible for the Licensing/Registration, Supervision, and Compliance Monitoring and On Site/ Off Site Examinations of Stock Broking Companies, Unit Trust Managing Companies and Market Intermediaries (Investment Manager, Margin Provider, Underwriter, Credit Rating Agency and Clearing House). The supervisory role of the Division involves both On Site and Off Site supervision on the financial viability and business conduct of market participants towards investor protection and thereby building investor confidence in the Capital Market. On site/Off site supervision is carried out adopting a Risk Based supervisory methodology focusing on different risk categories such as Prudential, Liquidity, Financial, Credit, Operational, Legal and Reputational Risk with emphasis on compliance of market participants with applicable Rules & Regulations to strengthen market oversight.
The main function of the Investigations Division is to conduct investigations into referrals either internal or external and complaints relating to any suspected/alleged irregularity in terms of the SEC Act No. 36 of 1987 as amended and/or Rules and Regulations made thereunder in order to ascertain whether there exists evidence to institute legal action against the transgressors and/or to take any other disciplinary action against those who have violated the provisions of the SEC Act, Rules and/or Regulations made thereunder.
External Relations and Surveillance
External Relations The External Relations Division is committed to impart knowledge and awareness on the capital market across all sections of society in all three languages. These initiatives are tailored to suit students, teachers and the general public and we utilize the print and electronic media as well as publications, seminars, workshops and investor – oriented events. The division also undertakes Investor Day programmes in selected towns to educate existing/potential investors as well as conduct quiz programmes for G.C.E Advanced Level students and University students to improve their financial literacy. In order to further promote capital market knowledge among Sri Lanka’s university populace, the division has established Capital Market Information Centres within the national university system and a comprehensive website with trading statistics, research articles and other useful information. In order to enhance investor awareness throughout the country the division facilitates live television programmes in both Sinhala and Tamil comprising of live discussions. Surveillance Main activities of the division:
- Effectively monitor trading activities to detect and prevent any transactions or trades that violate the SEC Act.
- Conduct preliminary examinations into suspicious activities/price and volume movements in the securities market and violations of securities laws and regulations. Examine surveillance referrals of the Colombo Stock Exchange brought to the attention of the SEC from time to time.
- Examine complaints made by investors or members of the general public and refer them to the Surveillance Committee.
- Preparation of reports for submission to the Surveillance Committee on preliminary examinations of suspicious activity.
- Scrutinize news sources such as press articles, corporate disclosures viz-a-viz market price behavior etc.
Capital Market Education and Training
The Capital Market Education and Training division (CMET) has been entrusted with the task of providing professional education and training in order to enhance knowledge and skill levels of market professionals, investors, issuers and market institutions whilst facilitating Capital Market research in Sri Lanka. The financial sector essentially includes the Capital Market, Banking Industry, Insurance Sector and other Financial Institutions. However, our main focus is to nurture and develop the Capital Market of Sri Lanka. The division has introduced a qualification framework taking into account the recent changes the Sri Lankan Capital Market has been facing in the recent years and aims to ensure that professionals practicing in the industry possess the competencies essential to secure the confidence of investors in the capital market. The framework will also assist to develop a pool of candidates who are trained in fundamentals of capital markets through the introduction of a minimum level of proficiency whilst assisting practitioners to progress to more advanced qualifications through the development of continuous professional development programmes. The framework sets out three levels of qualifications, Certificate in Capital Market (CCM), Registered Investment Advisor (RIA) and Diploma in Capital Market (DCM). In addition, the division has also introduced a Programme in Investing for investors and potential investors with the intention of providing basic theoretical and practical aspects of share trading. In addition CMET has also commenced “Certificate in Financial journalism” and “Advanced Financial Journalism” programme in association with the Centre for Banking Studies, Rajagiriya.
Capital Market Development
In 2007, the SEC established a Capital Market Development Division to promote its “nurturing” role to facilitate the development of the Sri Lankan capital market. The Division is responsible for the implementation of the Capital Market Master Plan (CMMP), which charts the future direction of the capital market in the country; and supports other market development initiatives. In this context, the Programme Management Office (PMO) of the Division needs to work closely with key stakeholders of the country’s financial system namely the Ministry of Finance, Colombo Stock Exchange and the Central Bank of Sri Lanka to fulfill its objectives. The implementation of the CMMP is phased out over a period of 10 years running through 2006-2015 (Please refer the CMMP for details). In May 2007, a number of key projects were identified for implementation in the first phase The project selection and kick off was based on the following: Market impact: Contribution of a particular project towards market/product development Feasibility of implementation: It was presumed that the macroeconomic environment would be stable and favorable market sentiments would continue to prevail. These projects include amongst others:
- Establishment of the Capital Market Institute to train market participants
- Formulate strategies to develop a vibrant corporate bond market.
- Establishment of Jathika Isura (JI) to manage GoSL assets
- Facilitate the introduction of derivatives to the Sri Lankan capital market
- Development of the Unit Trust Industry
- Demutualization of the Colombo Stock Exchange
Finance and Administration
The main responsibility of the Division is to ensure that the Commission and its respective Divisions function in a smooth and efficient manner. The Division is entrusted with a wide range of responsibilities which include financial control and budgeting, recruitment and personnel management, management of the Commission’s funds, supervision of general maintenance and upkeep of the Secretariat, internal risk management and procurement and management of office facilities and supplies.