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Mr. Chandra Jayaratne, a former Chairman of the Ceylon Chamber of Commerce, long serving CEO of Eagle Insurance and a director of the Ceylon Tobacco Company, has written to major regulators of the country’s financial sector calling for "a new paradigm for financial regulation" commencing this year.
Jayaratne has addressed this appeal to the two Deputy Governors of the Central Bank, Mr. W.A. Wijewardena and Dr. Ranee Jayamaha, the SEC’s Director General, Mr. Channa de Silva, Director General of the Insurance Board, Ms. L.S.A. Serasinghe and Ajit S. Ratnayake, Director General of the Sri Lanka Accounting and Auditing Standards Monitoring Board.
He has stressed in his letter that independent, professional and transparent collective regulatory action is required within agreed core values making he point that the public at large may perceive that financial sector regulations applicable here are inadequate in scope, archaic, inefficient and ineffective.
He has identified several reasons, the recollections of which had negatively impacted on the public perception of financial sector regulations. These are:
1. Collapse of leading Finance Companies
2. Deposit taking institutions engaging in unregulated business under the guise of the sale of loans
3. Deposit taking institutions engaging in unregulated business under the guise of selling the rights to valuable timber trees
4. Collapse of a regulated Savings Bank
5. Scam involving Pyramid selling schemes
6. Collapse of leading leasing, financing and investment institutions
7. Collection of deposits against credit cards
8. Central Bank intervention in registered commercial banks and finance companies to relieve financial stress and establish public confidence
``In addition, financial professionals, analysts, academics, and the media will recollect the following issues, with similar perceptions,’’ he said.
9. Raising of share capital and investment funds outside the control of the Securities Exchange Control, by the publication of pseudo public invitations to subscribe without publishing duly approved prospectuses
10. Sale of regulated and unregulated financial services products by misrepresentation and without full disclosure of associated risks and rewards
11. Raising of share capital and investments for a specified purposes with regulatory approval and thereafter using of such funds for totally different and unrelated purposes
12. Insider dealings and establishing artificial market prices by irregular means
13. Arrangements, transactions and uses of valuation bases and unacceptable accounting treatment/presentation to cover up shortfalls in solvency, capital adequacy and other statutory requirements and under providing for loan losses and fall in value of assets
14. Presentation of Accounts and Reports that distort facts, financial position, going concern status and asset valuations
15. Taking advantage of fair value accounting treatment options to inflate profits and asset values
16. Non disclosure of significant conflicts of interests and related party transactions, especially sale of assets and goods inter group and amongst associate companies with the consolidated accounts of the ultimate parent not being available for public review
17. Audited Accounts not conforming to accounting and auditing standards and even at times presenting erroneous valuation of assets and liabilities, profits, expenses and income and non disclosure or non compliance with accepted accounting policies and conventions
18. Audit reports failing to qualify the accounts and presentations even under circumstances which are evident to external analysts
19. Under providing for taxes, and other statutory dues
20. Taking undue advantage of government approved Funds set up to facilitate industry operations and risk mitigation and the under payment/ unfair ceding of requisite fees and premiums
Jayaratne said the negative public perceptions are driven by an over aching belief that the professional in positions of regulation and good governance assurance are
* Not allowed to discharge their duties with independence and subject to political interference
* directed or restrained by superiors with limitations placed on timely action
* overly no transparent and overly cautious in the due discharge of their duties
* at times too focused and narrow in their reviews and decision making
* insufficiently networked to fellow regulators and professional institutions
* not conscious of the voice of the community, especially knowledgeable professionals, analysts and media raising amber light signals
* less conscious of their duties and obligations to the nation and its citizens
``In the light of above, it would be in the best interests of the nation, the financial services sector and the public , if a collective new paradigm of regulation is adopted by you effective the new year 2009, where
* an informal collective network forum of regulators of the financial services sector is formed amongst you, with an agreed terms of reference
* you agree a Core Value guideline for Regulations, placing the sustainable long term interests of nation first, the interests of the citizen stake holders second and the interests of the financial services sector as a whole third
* you leverage your collective capabilities and commitments to ensure fair, impartial, timely and professional regulatory action devoid of interference and unfair restraint/limitation of action
* you establish network links with capable professional institutions, regional regulators and other independent groups that can strengthen your capability and capacity for independent and professional action
* effective risk management be a focused area for collective regulatory action
* Be transparent, independent and open, wherever possible, sharing information in a timely manner with the public at large
* Establish effective lines of communications with public stakeholders, thus improving stakeholder awareness and risk management capability.
Jayaratne concluded by taking the opportunity wish those he addressed ``success with your collective initiatives in adding value to the nation and its citizens, whilst upholding your independence, intellectual integrity and professional standing.’’
