Tuesday Mar 03, 2026
Tuesday Mar 03, 2026
Tuesday, 3 March 2026 03:49 - - {{hitsCtrl.values.hits}}
 |
 |
 |
 |
| Heritage Partners Senior Partner Dr. Arittha Wikramanayake | Sampath Bank Chairman Harsha Amarasekera, PC | Seylan Bank Chairman and former Supreme Court Justice Buwaneka Aluwihare, PC | Nithya Partners Partner Naomal Goonewardene |
The Securities and Exchange Commission (SEC) came under sustained and unusually direct scrutiny last week as some of the country’s most senior capital market lawyers and jurists publicly questioned whether the regulator’s expanded enforcement powers under the new SEC Act are adequately balanced by constitutional safeguards, structural separation, and institutional capacity.
The debate unfolded at the Bar Association of Sri Lanka (BASL) National Capital Market Symposium on 26 February at Cinnamon Life at City of Dreams, Colombo, across two panels examining insider dealing and market manipulation.
Participating were former SEC Director – Legal and Enforcement and Varners Partner Ayanthi Abeyawickrama, Heritage Partners Senior Partner Dr. Arittha Wikramanayake, Sampath Bank Chairman Harsha Amarasekera, PC, Seylan Bank Chairman and former Supreme Court Justice Buwaneka Aluwihare, PC, Nithya Partners Partner Naomal Goonewardene, LOLC General Insurance Chairman Kithsiri Gunawardena, and Attorney-at-Law Chandaka Jayasundara.
The sharpest exchange centred on whether systemic market credibility can justify curtailing procedural protections. Abeyawickrama argued that firm and visible enforcement is necessary to preserve investor confidence and orderly markets.
“The regulator’s duty is to preserve confidence and ensure orderly markets,” she said. Dr. Wikramanayake responded: “Presumption of innocence is not optional.”
He cautioned that strengthening enforcement must not dilute foundational legal principles, particularly where statutory presumptions may operate in a manner that effectively shifts the burden onto the accused.
Dr. Wikramanayake also raised concerns about the publication of names at the show-cause stage prior to final adjudication. He argued that public disclosure at an early investigative phase can have immediate reputational and commercial consequences for intermediaries and professionals, even before findings are made.
“Publication at the show-cause stage can function as punishment before adjudication,” he said.
He cautioned that investigations often span several years and that premature publicity risks undermining the presumption of innocence. While acknowledging the importance of transparency, he said enforcement visibility must be balanced against reputational harm if allegations are not ultimately sustained.
Harsha Amarasekera, PC, examining the insider dealing provisions, noted that the framework now hinges on possession of unpublished price-sensitive information rather than traditional fiduciary status.
“The perimeter is clearly broader,” he observed, adding that widening liability requires careful discipline in applying statutory presumptions and investigative powers.
He stressed that enforcement architecture must operate consistently with constitutional protections and that investigative and adjudicative functions demand structural safeguards.
Former Supreme Court Justice Aluwihare, PC reinforced that concern, warning that statutory presumptions and expanded enforcement tools must be applied with restraint and fidelity to established criminal law principles.
“Statutory presumptions cannot displace fundamental criminal law principles,” he cautioned.
Panellists also questioned the concentration of investigative authority within the Commission. Investigations are conducted under its authority, findings are evaluated by it, and enforcement determinations are made by it.
“We cannot allow a system where the same institution effectively investigates, determines, and enforces without robust procedural safeguards,” Dr. Wikramanayake said.
Kithsiri Gunawardena said the expansion of the insider dealing framework under the new SEC Act requires clarity in application and consistency in enforcement.
He observed that while broadening the perimeter of liability may be necessary to address evolving market practices, the practical implementation of those provisions must avoid creating uncertainty among market participants.
“Market participants must know where they stand,” he said.
He noted that the shift from traditional fiduciary concepts to a possession-based test widens exposure and therefore increases the need for disciplined interpretation.
Gunawardena said that capital markets depend not only on deterrence but also on predictability.
“If enforcement becomes unpredictable, it affects behaviour beyond the immediate case,” he said.
He emphasised that regulatory credibility rests on consistency, transparency, and proportionality.
While supporting strong insider dealing laws, he said the regulator must ensure that investigative processes and enforcement decisions are applied uniformly.
“Confidence is built on fairness as much as on firmness,” he said.
The debate extended further during the market manipulation panel.
Chandaka Jayasundara outlined the statutory threshold under Section 128 of the Act, noting that the law requires intentional conduct that creates a false or misleading appearance of active trading or price formation.
“The movement must be intentionally engineered and misleading,” he said.
Dr. Wikramanayake cautioned that Sri Lanka’s relatively illiquid market complicates analysis.
“A single large trade can significantly move a thinly traded stock,” he said. “Volatility cannot automatically be equated with manipulation.”
Naomal Goonewardene described recognised forms of manipulation, including pump-and-dump schemes, wash trades, matched orders, and marking the close, but warned against conflating legitimate commercial activity with criminal conduct.
“The first is inter-group transactions,” he said, referring to corporate restructurings where shares move between group entities at valuations that diverge materially from prevailing market quotations. “Such transfers cannot automatically be treated as manipulation,” he said.
He added that takeover and strategic transactions frequently involve negotiated pricing outside quoted market levels. “Commercial realities cannot be ignored,” he said.
Goonewardene also addressed past controversies involving institutional investors, including the Employees’ Provident Fund (EPF), cautioning against what he characterised as the retrospective deployment of market manipulation provisions in transactions involving large State-managed funds.
“If a sophisticated institutional investor transacts at a certain price, that is fundamentally a commercial judgment,” he said.
He argued that institutional investment decisions, even where they later prove controversial or commercially unfavourable, should not automatically be recast as criminal manipulation absent clear evidence of intentional distortion of market price.
“These are powerful statutory tools,” he said. “They must be used responsibly.”
He cautioned that reopening transactions many years after they occurred, particularly in cases involving large institutional participants such as the EPF, risks conflating commercial risk, pricing disputes, or governance failures with criminal intent.
“The fact that a transaction later becomes controversial does not, by itself, establish manipulation,” he said.
Dr. Wikramanayake reinforced that market manipulation is inherently preventive and real-time in nature. “Market manipulation is a real-time phenomenon,” he said. “If suspicious trading is identified, intervention must be timely.”
Reopening transactions from a decade or more ago and attempting to reconstruct intent, speakers suggested, risks undermining fairness and distorting the preventive objective of regulation.
The panels also examined the SEC’s enhanced powers to compound offences under the new Act. Speakers noted that the statute permits the Commission to settle certain violations administratively, including through the imposition of financial penalties linked to the benefit gained or loss avoided.
While acknowledging that compounding can serve as an efficient enforcement tool, concerns were raised about the scale of potential penalties and the practical pressures such provisions may create.
Dr. Wikramanayake observed that where significant financial consequences are attached, the option to compound may in practice operate as a strong inducement to settle rather than contest allegations.
He cautioned that the availability of large monetary penalties must be accompanied by procedural clarity and proportionality.
Goonewardene added that compounding powers, like manipulation provisions, are powerful tools that must be applied consistently and transparently.
“These are not minor administrative sanctions,” he said. “They can carry substantial financial and reputational implications.”
The discussion concluded with a distinction between the statutes itself and its administration.
“I do not fault the statute,” Dr. Wikramanayake said. “The Act provides the tools. The question is whether the institution has the capacity to apply them in complex commercial environments.”
He said enforcement of sophisticated insider dealing and manipulation provisions requires deep commercial understanding, technological expertise, and continuity of leadership.
“This is not about weakening enforcement,” he said. “It is about ensuring that those who apply the law understand the commercial realities they are judging.”
Reference was made to reported vacancies within the Commission, estimated at around 50 positions, and the challenge of attracting and retaining top professionals with capital market expertise.
Speakers said sweeping statutory authority must be matched by institutional depth, operational stability, and safeguards that protect individual rights.
BASL President calls for autonomy, structural reform of SEC
 |
| Rajeev Amarasuriya |
Bar Association of Sri Lanka (BASL) President and former Securities and Exchange Commission (SEC) Commissioner Rajeev Amarasuriya has called for full financial and operational independence for the SEC, arguing that institutional autonomy is critical to strengthening regulatory effectiveness in an increasingly complex capital market.
Speaking at the BASL Capital Market Symposium, Amarasuriya said the regulator must be empowered to determine its own cadre requirements and remuneration structures if it is to attract and retain professionals capable of overseeing a sophisticated and evolving market.
“Having that autonomy will allow the SEC to act independently and to regulate the market effectively,” he said.
He stressed that regulatory independence is not merely administrative but functional.
“If we want a regulator that can respond to complex transactions, market innovation, and cross-border activity, we must ensure it has the financial flexibility to hire and retain the right expertise,” he said.
While acknowledging progress made by the Commission in recent years, Amarasuriya highlighted what he described as a deeper structural issue within the current framework. He noted that the SEC is simultaneously tasked with promoting market development and enforcing market regulation.
“On the one hand, the SEC is responsible for developing the market. On the other hand, it must ensure a free and fair market through strict regulation,” he said.
He warned that these dual mandates can create institutional tension, particularly during periods of market stress.
“When markets are not performing well, there may be pressure to stimulate activity. In such situations, regulatory priorities can become conflicted.”
Drawing a parallel with ongoing discussions surrounding reforms to the Attorney General’s Department, Amarasuriya said structural separation of functions is often necessary to preserve institutional credibility.
“The Attorney General is both legal adviser to the State and Chief Prosecutor. That tension has led to proposals to separate prosecutorial functions. A similar structural question arises in relation to the SEC,” he said.
He suggested that market regulation should operate under a clearly demarcated framework, even if housed within the same institutional structure. “Regulation must be insulated from development objectives,” he said.
Amarasuriya emphasised that long-term investor confidence depends on certainty of enforcement.
“If market participants know that five, 10, or 15 years from now, if a violation is detected, action will be taken, that certainty builds confidence,” he said.
He cautioned that regulatory standards should not fluctuate based on short-term market performance or political pressure.
“In a small market like ours, there will always be pressure. Some will argue that we are over-regulating. Others will say we are under-regulating. But consistency is what builds trust.”
He also observed that leading capital market regulators globally derive their effectiveness from institutionalised financial and operational independence.
“Autonomy cannot depend on convention. It must be protected by statute,” he said.
Amarasuriya further noted that discussions around reform should extend beyond the SEC to encompass related pillars of the capital market framework, including investor protection mechanisms.
