Tilak talks his way out of SEC

By Nisthar Cassim

Tilak Karunaratne yesterday resigned as the Chairman of the Securities and Exchange Commission (SEC), a move which he had pre-announced early this week and personally decided last weekend.

“I am leaving the SEC as a sad but relieved man,” Karunaratne told the Daily FT before dispatching his two-page letter of resignation to Finance Ministry Secretary Dr. P.B. Jayasundera.

“I won’t sacrifice my principles and I am not someone who deviates after I have made a decision,” he said, in response to moves by his staff as well as supporters for his continuity. Given his personal beliefs and character, Karunaratne said he wasn’t a person who used people to get things done. This he said in denying that he had told staff he would remain if President Mahinda Rajapaksa asked him to continue.

He also said he had no hand in SEC staff or minority shareholder activist K.C. Vignarajah rushing letters to Temple Trees, appealing to the President to not let Karunaratne resign or prevent the move.

Karunaratne revealed that his decision to quit as SEC Chief was made last weekend but he fixed Friday as the exit date because he wanted to create awareness on the dangers facing the capital market regulatory body.

“When the job was offered to me, I had lot of apprehensions but I was assured a free hand," he said.

"We did make a lot of headway in terms of finalising amendments to the SEC Act, expediting the move towards demutualisation and better risk management,” Karunaratne said.

However, Karunaratne added: “I am a private sector man and from now onwards I will never take another Government job.” This emphasis he is from private sector was an apparent rebuttal to critics who found him as anti-capitalist or capital market.

On Monday he told Reuters: “I am under immense pressure to resign for the reason those concerned know best. This might be mainly due to false information fed by a mafia of high net worth investors and their crony stockbrokers who have been involved in pump-and-dump deals.”

He also told Reuters the next day, “It’s better to call it a day rather than fight with these people.”

Perhaps as desired by Karunaratne, the week since his announcement saw a growing chorus of ex-regulators, economists, good governance activists and politicians, as well as the Ceylon Chamber of Commerce and today the Sri Lanka Institute of Directors calling for greater independence for SEC and jeers for the so-called mafia which Karunaratne hasn’t specifically named yet.

Karunaratne said his letter of resignation would not be made public.

His predecessor Indrani Sugathadasa, who resigned in December last year, also cited her move on “upholding her principles”.

Analysts noted that if both letters are made public, which is unlikely, perhaps a true perspective could be assessed in the milieu of speculation, rumours, allegations and hate mails doing the capital market rounds.

Others said Karunaratne’s exit was a matter of time after he had implicated and compromised the President, who is also the Finance Minster, and the Finance Ministry Secretary via his actions and statements despite the SEC Chief’s concerns being taken note of and the Government’s objectives clarified via a forum chaired by the President himself, followed by two subsequent meetings with Dr. Jayasundera.

Under his leadership, Karunaratne also faced the wrath of the broader investor base and brokers (except a select few) for overregulation and creating a fear psychosis. The SEC also ran the risk of ignoring its other responsibility – promotion and development role as Sri Lanka is a frontier or an emerging/developing market.

These two combined reasons had been cited as key reasons for the loss of local investor confidence and participation, leading to a near 20% year-to-date decline in the Colombo stock market, with over Rs. 300 billion in value wiped out.

A fact that blinded both sides, however, is the record net foreign inflow of Rs. 27 billion so far this year. Though this is largely on fundamentally-sound blue chips and a small fraction of the larger global pool of equity investments, the fact remains that foreigners see greater upside in investing in listed companies in post-war Sri Lanka.

Whilst the SEC Commissioners and staff will pat themselves on the back that foreign inflows are because of the tightening of regulatory process, the other view is that foreigners don’t see the Colombo market as full of crooks and manipulation either.

Perhaps it was this and other dilemmas which saw the market suffer or prolong a much-needed revival in tandem with relatively better macroeconomic fundamentals as emphasised by the Government. In that context, a more pragmatic approach to regulation was called for as brokers and investors present at the Presidential forum with the capital market in late July didn’t call for an end to investigations or demand a regulation-free regime.

Supporters of the two sides are likely to have their own theories, reasons, disappointments and relief, but the latest saga at SEC, as per independent analysts, has yet again reinforced the need to build autonomous, independent, credible and accountable institutions, especially when it comes to regulatory function.

As chairmanship at the SEC is non-executive, the greater challenge is to make the commission professional, leaving no room for allegations of any hidden personal agendas, discrimination or favouritism.