The Securities and Exchange Commission of Sri Lanka (SEC) and the Colombo Stock Exchange (CSE) in a recent collaboration addressed the growing concern of listed companies lingering on the CSE Watchlist for extended periods.

In an awareness session convened for auditors of watchlist companies, SEC Chairperson Senior Prof. D.B.P.H. Dissabandara flagged the risks associated with prolonged watchlist stays, warning that extended inclusion can send adverse signals to investors. He called for a “structured connected approach” among auditors, listed company management, and regulators to ensure incremental progress toward resolving watchlist triggers.

The SEC stressed the need for a coordinated approach to resolve underlying issues, particularly those related to going concern uncertainties and delayed financial statements.

CSE Head of Listed Entity Compliance Kassapa Weerasekara outlined the enforcement framework, explaining that securities can be transferred to the watchlist based on specific triggers. 

However, he emphasised that reinstatement is possible: “If companies take the right steps and obtain independent verification on the resolution of all matters giving rise to Modified Opinion and Emphasis of Matter on Going Concern, their securities can be fully reinstated.”

A panel discussion featuring SEC Director Corporate Affairs Manuri Weerasinghe, CSE Chief Regulatory Officer Nilupa Perera, and Weerasekara explored recurring friction points between auditors and listed companies. Weerasinghe reminded participants that Section 90 of the SEC Act requires auditors to report material breaches, fraud, or financial irregularities to the regulators. She highlighted the legal protections embedded in the Act, which shield auditors acting in good faith from legal liability. “This provision is intended to empower auditors to carry out their responsibilities independently and without fear of legal repercussions,” she said.

The panel also addressed the frequent claim by companies that auditors are responsible for delayed financial submissions. In response, auditors noted that they cannot commence work until formally engaged, and rushed timelines compromise the thoroughness required by professional standards. The panel recommended that companies engage auditors well in advance and establish clear timelines to prevent non-submission from becoming an enforcement trigger.

The session is part of a broader effort by the SEC and CSE to strengthen capital market governance. Both institutions reaffirmed their commitment to fostering a transparent, investor-friendly environment, noting that such sessions will continue as part of ongoing efforts to ensure enforcement mechanisms serve their intended purpose without undermining the long-term viability of listed companies.