Annual Report 2010 - Ministry of Finance and Planning

3 | REFORM INITIATIVESBox 3.6Finance Business Act No. 15 of 2011The Cabinet of Ministers in December 2010 approved the submission of the draft Finance Business Act, to Parliament.This Act is aimed at regulating finance business and repealing and replacing the Finance Companies Act, No. 78 of1988 (FCA). This Act has since then been submitted to the Parliament and is pending the 2nd reading.The need to amend the FCA has been felt by the financial sector as well as the regulator in order to update the lawwith the developments in technology and practices, the need for combating unauthorized deposit taking businessesand to enhance effective regulation of the financial sector to overcome challenges to the stability of the financialsector.The following are some of the salient features of the Bill (including committee stage amendments):• Acceptance of deposits without authority is made an offence.• Definition of “deposit” is introduced.• Enhanced Examination & Investigative powers.• Enhanced powers to curb unauthorized finance business & acceptance of deposits.• Restriction/prohibition of the use of certain words.• Use of the words ‘finance’, ‘financing’ and ‘financial’ in a name or description of an entity is restricted.• Use of an abbreviated name or acronym of a licensed finance company by any other company is prohibited.• Enhancement of supervisory action on licensed finance companies.• Enhanced public disclosure.• Penalties under the Act are enhanced and abetting to commit an offence is also made an offence.• Carrying on finance business without authority and accepting deposits without authority are made indictable offencesby the Attorney General in the High Court.• Introducing requirements to inform of any reasonable suspicion relating to carrying on finance business or acceptingdeposits from the public, without authority.Capital Markets ReformsIn 2010, the Securities and ExchangeCommission of Sri Lanka alsoimplemented several reforms witha view to enhance capital marketoperations. These initiatives areconsistent with the government’sstrategic priorities and strive toensure that the SEC continues toplay a significant role in the securitiesregulatory landscape.The SEC granted licenses to 5 StockBrokers, 5 Investment Managers, 9Margin Providers, 3 Underwritersand 1 Stock Dealer. The SEC directedthe CSE and the CDS to mandatethe lodging of certificates pertainingto all listed securities at the CDSand thereby implement a systemof dematerialization of all listedsecurities. During the course of 2010the SEC finalized the regulatoryframework for exchange tradedfunds, updated the Code for UnitTrusts, finalized the drafting of Rulespertaining to Employee Share OptionPlans, simplified and reduced thetransactions at the Colombo CSE byabout 20 percent, reduced the ticksize pertaining to the share price from25 cents to 10 cents across the boardsto facilitate a more accurate pricediscovery mechanism and to mitigatechances of market manipulationsand conducted a consultation on theadvisability to mandate all public listedcompanies to maintain a specifiedpercentage as public holdings. Withthe aim of enhancing surveillancefunctions. The SEC procured a stateof the art surveillance system in 2010.This new system has the capacityto provide enhanced solutions thatwill enable the SEC to monitor themarket more effectively and preventmisconduct.In the year 2010, price bands wereintroduced to arrest the volatilityin the market and to formalizecredit arrangements to clients. Suchprice bands were introduced afterobserving that prices of certainstocks rising without being backedby sound fundamentals. In orderto promote Unit Trusts to mobilizesavings, several significant steps were186