Harsha declares SEC fiasco a Govt. failure

By Nisthar Cassim

UNP MP Dr. Harsha de Silva yesterday declared that the fiasco at the capital markets regulator leading to the impending resignation of its Chief was a clear “failure of the Government”.

“In the next few days the  Government’s failure will be known,” Dr. de Silva remarked, linking it to the pre-announced yet impending resignation of Securities and Exchange Commission (SEC) Chairman Tilak Karunaratne.

Citing a theory espoused by Noble Prize winner for Economic Sciences in 1982 George Stigler, the UNP MP alleged that the country had experienced a “regulatory capture”.

“When regulatory capture happens, it is not market failure but Government failure, because it is the Government which institutes a regulator to look after the interest of all stakeholders,” Dr. de Silva told a press conference yesterday.

 “It is not the Opposition or the media but the Chairman of the SEC who is saying there is a mafia. Tilak Karunaratne didn’t fall from the sky overnight; he is a well respected and senior person. He has said it with due knowledge. This mafia has captured the regulator,” the UNP MP claimed.



He alleged that this was after certain individuals and investors, who as per market talk constitute the mafia, met the President Mahinda Rajapaksa recently. Dr. de Silva alleged that the “regulatory capture” by this group was to ensure that capital market regulations could be changed according to their whims and fancies. “This is because there are several ongoing investigations on alleged insider dealing and market manipulations against these persons,” the UNP MP claimed.

Dr. de Silva said as per the SEC’s Act, “Effective regulation lays the foundation for investor confidence, supports efficient functioning of the capital market and thereby builds the platform for economic growth,” hence the stock market was an important component of the country’s financial system and that it was also crucial for the country’s growth and development.

“Some people describe the stock market as a casino. Be that as it is. However, the stock market plays a crucial role in a country’s economy and private sector development. It shouldn’t be ridiculed or looked down upon. A vibrant secondary market is key for emergence of a primary market via which companies raise funds for investments. Of late we have seen lesser number of IPOs because of the problems in the secondary market. Due to inequity with only some big players benefitting via pump and dump strategies, the larger base of small and retail investors have lost confidence in the market,” the UNP MP opined.

As per the Act, it is the SEC which is responsible for the creation and maintenance of a market in which securities can be issued and traded in an orderly and fair manner as well as protection of the interest of investors. Via malpractices and without equity, justice and fair play to all, a market can be destroyed. It is the regulator and regulations that ensure markets don’t fail.

“However if the regulatory process fails, then it is a reflection of the failure of the Government,” he explained, adding: “If there a ‘regulatory capture,’ then it is better to not to have any regulations at all.”

Dr. de Silva said that the SEC under the chairmanship of Karunaratne had commenced a series of investigations to detect malpractices and punish wrongdoers. As per the SEC Act, if a person is found guilty, he or she is liable to imprisonment of a minimum of two years or a maximum of five years. The UNP MP indicated that the mafia via the regulatory capture was trying to change the course of the investigations.

He said that the last concluded investigation was with regard to an alleged act of non-disclosure by Environmental Resources Investments (ERI), over which alleged violation several directors of the company were imposed with a fine of Rs. 3 million. “This is a very low fine in a market where Rs. 3 million could be made within three minutes,” he said.

The UNP MP also used the press conference to renew his often-repeated call for the implementation of Right to Information (RTI) Act. He pointed out that if there was RTI, then proper information could be obtained and various persons and institutions could be held accountable.