The SEC needed a shake-up

By Charindra Chandrasena

Ranel Wijesinha, a Chartered Accountant, was appointed a Commissioner of the Securities and Exchange Commission of Sri Lanka (SEC) after the change of government in early 2015. He took over as Chairman of the SEC in mid-2018, replacing the two-term chair, Thilak Karunaratne. As he steps into his second year in office, The Sunday Morning Business caught up with Wijesinha to look back on the past 13 months, and the changes he has tried to bring in to the SEC, as well as his relationship with the SEC’s licensees, which includes the Colombo Stock Exchange (CSE) and stockbrokers.
The following are excerpts of the interview:

Q. You have now been in this position for just over a year. How did the first year turn out?

Yes, in calendar time, just over a year. Yet, I wouldn’t say I have been in office for a year. Effectively, it’s around nine to 10 months. When all the commissioners were finally appointed and we had our first commission meeting, it was mid-June 2018. The 2018 constitutional crisis, or the self-inflicted political tragedy I call the “October Revolution”, robbed us of 50 to 60 days of progress and performance. Then came the “terrorist tragedy” – we closed the market on the Monday after the Easter Sunday attacks and many of our own people did not return to work until a sense of normalcy had been restored. Post this event, there was uncertainty for some time, given the differences within the political leadership. All this negatively impacted and perhaps continues to impact stock market performance.

Q. Beyond all that, have you faced any other challenges?

Challenges and obstacles are inherent in this long abused capital market, which has a history of two Chairpersons being urged to step down, Director Generals being pushed out in the last decade, and a battle between a Chairman and Director General almost 15 years ago. There was also the infamous pump and dump, insider trading, and capital market offences era.

Nevertheless, given my long association with the SEC, the CSE, and the capital market, I believe that these legally well-enabled institutions, relevant regulations, and the industry have many sound elements, people, and practices, and thus deserve special attention, our dedication, and commitment. I am passionate about restoring credibility and regaining public confidence. That has been my guiding philosophy.

Q. What are the attributes that have helped you perform your role?

I brought to this position local and overseas experience and exposure of relevance – a 30-year prior association with the capital market, a proactive approach to policy development and negotiations for incentives with the Government, practical experience working as a director in a large and diversified conglomerate, and as a partner and head of consulting in a Big 4 accounting firm.

I was a Commissioner from 2000-2001, and then a Commissioner in 2015. Here, I went beyond the typical commissioner role, made a series of recommendations to former Chairman Thilak Karunaratne and the current Director General, (DG) Vajira Wijegunawardane, and rolled up my sleeves and gave both considerable gratis time to help implement my suggestions. Regrettably, a lot was not taken on board. You have to be in the driving seat to make things happen. So when I was appointed Chairman, I was able to hit the ground running.

As I took office in May 2018, I declined the purchase of a new vehicle I was entitled to, and instead use a previously seldom-used pool vehicle, bought for CHOGM 2013. It is not extravagant or flashy but helps maintain the dignity of office, and the vehicle and driver revert to the World Trade Centre office each evening. I am content and happy with that.

Q. What changes would you say you have made to the SEC as Chairman?

This organisation needed a bit of a shake-up because there was an element of a “wait for tomorrow” attitude. The SEC today is different from what it was even as recently as May 2018, primarily because we have gradually transformed the previous institutional culture to a culture of greater productivity, proactivity, and timeliness; and open, frank, and transparent, intellectually aware and challenging internal approaches, among a now more empowered group of professionals.

There is a multidivisional, multidisciplinary, interactive approach adopted when dealing with issues, and high-profile or high-level matters are used as case studies and a basis to improve regulatory policy, processes, systems, and strategy. We are more accessible to and approachable by stakeholders – whether they are the CSE or PLCs, brokers, individual investors or others.

Q. It sounds like you have adopted quite a hands-on approach. Is that practical and sustainable for a non-executive Chairman?

As non-executive Chairman, I don’t engage in executive operational, administrative, or financial functions. I do not engage in day-to-day work but consider myself an engaged chairman. If something is not being done, I will make sure it gets done. The theme if you will is “making things happen through substance and sound science”.

My approach is not one-off or a quick fix. My goal is to institutionalise improvements and changes in the way we do things so that future chairpersons can be less engaged whilst yet being effective. There are key components of my approach here – I am restoring or helping create a culture and an “institution” of greater regulatory scope, coverage, and effectiveness and of course timeliness, urging research into and learning from other IOSCO (International Organisation of Securities Commissions) jurisdictions and progressing to best-in-class practices while having our feet firmly planted on Sri Lankan soil.

Q. Has the introduction of this new work culture been welcomed by the officials at the SEC?

Many people, both from within and outside the SEC, have used the words “a breath of fresh air” when referring to my approach. Of course, experience has taught me that no one can be all things to all people. Those who want to perpetuate mediocrity may not welcome it. But the larger majority, and those who are worthy of being called professionals, and are passionate about a career in regulation have welcomed the intellectually challenging and results-oriented new culture. We have many qualified, knowledgeable, experienced professionals of many age groups, who have high capacity and capability and whose independence and objectivity, honesty, and integrity is such that it is a pleasure indeed to work with them.

Q. You mentioned that you have strengthened the Investigations Division. What is the progress of the investigations, particularly those related to pumping and dumping and manipulation?

I am not at liberty to divulge details at this stage, but I can say we have over the last 10 months made significant progress. We have issued 13 notices of action, and that is a lot. We have referred many cases to the Attorney General’s Department and cases have been filed in court. It is not easy to conclude an investigation when you have to gather information, access documentation from a variety of institutions, interrogate relevant people, and so on and so forth. We have substantially improved this process. The DG now provides me with a progress report every two weeks. As for the Supervision Department, we have reviewed processes, procedures, and improved our approaches, responsiveness, and timelines.

The first two areas I focused on, within my first week, was the slow progress of investigations, enforcement actions, and litigation as well as the apparent long and embarrassing delays in addressing complaints of investors against brokers.

After a careful assessment of the investigations division’s specific capacity, and having observed their people and other resource constraints, together with the Director General, I spoke to senior chartered accountants, economists, lawyers, and others and requested the DG and Director – Finance and Administration to transfer almost nine senior persons from other divisions to the investigations division.

Q. Are you confident that you would be able to see these investigations through, or will they be abandoned somewhere down the line?

Abandoned? Not under my watch! I’m an international consultant, I charge by the hour. Now I’m giving my time free so my expectations are far higher. I don’t have any agenda other than being a good regulator. I will, together with the Director General, our team of Directors and professionals, and the committed Commissioners, not let up on what we have begun.

Q. Have you faced political interference?

None whatsoever. There have been instances in the past where interference may have taken place, but I do not fault the politicians alone – I fault the professionals who allowed those breaches or interferences, which might have led to regulatory forbearance. This may include an instance I think a decade ago, when the then Chief Justice instructed the SEC to withdraw a case connected with insider trading. Under my watch, I can say with responsibility and respect for the powers that be that no one has influenced or interfered with us.

Neither Prime Minister Ranil Wickremesinghe nor Finance Minister Mangala Samaraweera – our subject Minister – has even called to interfere. Recently, President Maithripala Sirisena wanted a clarification on a certain matter and the clarification was provided. He respected my role and the position we had taken, treated us with dignity when we met him, and that was that.

Q. How has your relationship with the CSE been as Chairman of SEC?

Excellent. Very good. So good that I’m trying to get them also to perform better. One of the things that the CSE and the brokers were concerned about during my predecessor’s time was that they were seeking meetings with him, which were not being provided. From day one of my term, SEC has been engaging the CSE in such a manner that no longer are requests made for quarterly or monthly meetings, but meetings take place on the run and matters requiring policy papers for approval have been fast-tracked, without reducing the necessary diligence.

Q. Under your watch, the SEC has been heavily involved with the affairs of the CSE. Is a regulator supposed to be this involved?

Excellent question. This provides me with a wonderful opportunity to explain what you term “my watch” and the resulting philosophy or regulatory strategy of the new SEC.

The reality is that hitherto, the SEC had not gone even halfway from the crease to the boundary to live up to SEC’s own statutory, mandatory, responsibilities over the CSE with regard to the CSE’s broker oversight and monitoring, show causes or reprimands, handle investor complaints and resolutions, or the CSE’s rigour with which it approved new listings or the timeliness with which it generated new products. That has now changed and is welcomed by progressive members of the CSE Board.

They have invited us for some years now, to share the cost of overseas and local market promotion. We do so with a 50% contribution, thus we partner the strategy, the process, and the deliverables. I would like the CSE Board and management to be far more productive and proactive in terms of market development. The CSE has been one of the most attractive markets in the region for many months given its market multiples and price earnings ratios. We must now determine whether the CSE, the stockbrokers, and other stakeholders, who are required to perform market development, are playing their roles. Market development to my mind is not only conducting “Invest Sri Lanka” promotional events overseas. It has to be an ongoing initiative.

There have been complaints made to me directly by investors that they have been abused by the brokers and margin providers and that the CSE has done nothing. The CSE needs to monitor the brokering community a lot more as it has a responsibility to build a better brokering community.

For example, as soon as I assumed duties as Chairman, two investors jointly submitted a written complaint stating they had complained about a broker in 2015 to the CSE and that the CSE had not found the broker wanting. But the Dispute Resolution Committee of the CSE found the CSE’s initial inquiry into the complaint wanting, which meant they had to reconsider the complaint. Those two investors decided not to go back to the CSE as they were wary from the initial experience, and had complained to my predecessor – Chairman Karunaratne. He never referred it to the Commission. When it was brought to me in June 2018, I got the Director General and a team to look into it and referred it to the Commission and followed up.

There is a provision in the SEC Act that requires the SEC to refer complaints to a complaints review committee. You would be surprised to know that for three years since 2015, such a committee was not properly operationalised. Just as it was realised and a committee formed, the term of the Commission ended. Under my watch, I appointed a standing committee of three commissioners who took three months and did an excellent job. Thereafter, as I understand it, for the first time in the history of the SEC, we “Show Caused” that stockbroking firm indicating the amount of money it is required to pay as a broker firm and a margin provider as well. We are now waiting to see how this broker is going to compensate the losses to the investors. I am at a loss to understand as to why this matter took this long.

This is why I believe one cannot be a non-executive, underperforming, dis-engaged chairman. There are many more interventions that I do not have the time to even generically refer to, but we are doing our utmost to live up to the expectations of investors.

Q. You appear to be dissatisfied with the performance of the stockbroking sector. However, certain stockbrokers may counter by saying they are stifled by overregulation. Your thoughts?

Well, if they are overregulated, why are we still receiving complaints against them from investors? We don’t want our regulatory activity constrained because the brokers say the regulation is stifling them. We will investigate every complaint with the thoroughness it deserves. Of course, those who have carried out capital market offences may be eager to perpetuate this perception of “overregulation” to force the SEC to go slow on regulation.

All brokers pay a license fee to the SEC of only Rs. 40,000 annually. They are all given the same opportunity. Some brokers have a margin providers license as well. That license fee is a mere Rs. 20,000. Brokers are required to have capital adequacy and minimum shareholders funds. These are fundamental investor protection measures any regulator would have. Under the previous regime, several new brokering licenses were given. There was inadequate basis for that. Thus, we may have too many brokers in the market, competing for the same business.

We have some very well and long-established, high-quality research-driven, technically, financially, and administratively well-resourced and well-managed, visible, globally connected, hardworking, high performing brokers with well-serviced branches. We also have many who are prodding along with neither a research arm or branches nor initiatives to market the stock market.

Q. On 19 June, a former SEC Chairman Dr. Nalaka Godahewa pointed out, using a graphical illustration, that during his tenure the stock market was booming, but during your tenure it has plummeted. Your thoughts?

(Laughs) I do not wish to reciprocate his complement or to engage in literary satire to do so. He held office once as Chairman and I respect the office of Chairman. As for that cartoon, I gather there are many authors of these cartoons, including some professionals who visit places we host successful “Invest Sri Lanka” events at and urge foreign investors not to invest in Sri Lanka. Now, is that patriotism to Sri Lanka or self?

By his logic, if the performance of the stock market is a function of the SEC, the performance of the banking industry should be a function of the Central Bank. The reality is that, just as the Central Bank only “regulates” the banking industry, the SEC only “regulates” the market. The CSE and the brokering community have the responsibility of leveraging the attractiveness of the market, not the SEC.

I must ask CSE Chairman Ray Abeywardena, with whom we have a mutually respectful working relationship, whether there should be a graph with him and CSE CEO Rajeeva Bandaranaike to show how the stock market is underperforming. But then, to be fair by the CSE, I might ask the cartoonist to have an inset in the graph showing how much UK investor funds came in October 2018 after our hard work at the Invest Sri Lanka forums in London and Edinburgh and the significant outflow from the market following the October Revolution.

Photo: Saman Abesiriwardana