Nalaka goes to Arittha for insights to current SEC Act, regulations

• Former DG in a presentation to Commission suggests new regime to stick to disclosure based regulation
• Hints in recent times there was a shift towards merit-based approach
• Moots SEC shouldn’t micro-manage market but give space whilst severely dealing with any transgressions
• Calls for elimination of ambiguity and inconsistency by bringing greater clarity on offenses including insider dealing under the Act

Former Director General Arittha R. Wikramanayake last week shared his insights on the current SEC Act as well as existing regulations on an invitation from new Chairman Dr. Nalaka Godahewa.

The move by Godahewa was to better understand the SEC Act, its strengths as well as weaknesses and what is required for effective and pragmatic regulation.

During a presentation that lasted nearly two hours, with the audience including several Commissioners as well as Acting and Deputy Director Generals, Arittha had given his views on the SEC Act and shared some insights to what is required and whether the existing legislation is adequate or not. He had also been frank on what the regulator should and shouldn’t do.

Among reasons for seeking the ex-DG’s views is also to assess the degree of current regulation, whether it is too much or too little. The briefing comes amidst repeated claims by ex-Chairman of SEC Tilak Karunaratne and certain segments that the market was under-regulated hence fresh laws were necessary.

However, several stakeholders within capital markets had countered this claim by saying that the SEC in the recent past was paranoid with trying to impose new rules which were perceived to be a hindrance to the SEC’s mandate of capital market development especially in the context that Colombo is widely considered as a frontier or emerging market.

Following an interactive discussion, SEC’s take from Arittha’s presentation included that it must stick to the disclosure-based regulatory regime and not merit-based.

It was emphasised that with a disclosure-based regulatory regime, if effectively enforced, the market can be efficient, fair, and orderly. 

“A disclosure-based regulatory regime, among other things, will ensure material information is disseminated immediately, thereby enabling the investing public to make informed decisions,” Arittha had stressed.

Whilst noting that in the recent past the SEC may have shifted towards a merit-based regime, Arittha had recommended that SEC shouldn’t micromanage the market or listed companies via its regulations.  He had expressed his personal opinion on several of the SEC’s moves of late, such as the imposition of the price band as well as halting listings via introductions.

The need to eliminate ambiguity and inconsistency with regard to offences including insider dealing provisions via greater clarity was also stressed by Arittha, who was the Director General of SEC in the early 1990s. This lacuna, he had opined, was a key reason for contention between the SEC and those suspected of alleged malpractices.

It was also pointed out that the crux of the SEC’s Act was s to achieve the twin objectives of creating an efficient capital market for raising of capital as well as protection of investor interests. Whilst a disclosure-based regulatory regime must be effectively pursued, markets must be given space to operate freely as well. If and when transgressions occur, such must be severely dealt with.

Arittha is the Precedent Partner of Nithya Partners, Attorneys-at-Law. Apart from being an Ex-DG at SEC, he was formerly a Member of the Public Enterprises Reform Commission (PERC) as well as the Sri Lanka Accounting and Auditing Standards Board.