Financial Times

Pyramid schemes banned under new laws
By Duruthu Edirimuni
Prohibiting pyramid schemes, recognising Islamic banking and giving the Central Bank more teeth to deal with private banks are among the salient features of amendments to the Banking Act that have been approved by the government.

The Bank can investigate pyramid schemes under the new law. It sought to include urgent amendments to the Banking Act to prohibit pyramid schemes following the rapid spread of such easy money-making scams in the country which have duped many people.

Meanwhile, some customers of the controversial Gold Quest referral marketing scheme assembled at Shalika Hall in Narahenpita on Friday to secure the last of the 10,000 signatures in a petition to the Central Bank seeking to change the regulator's perception of the scheme.

A senior official at the Central Bank responded saying that the regulator will examine the petition and take steps to provide redress to the petitioners. The amendments to the Banking Act also seek to streamline some procedural features while strengthening regulatory and governance aspects and clearing bottlenecks the regulator is stifled with in dealing with banks.

There are specific provisions relating to banks' licensing procedures, consolidation and mergers, disclosure requirements on financial statements, fit and proper tests and increasing the limit on priority payment of deposits upon liquidation, among others.

"In the case of new applications and the licensing process we have found certain weaknesses, which we needed to strengthen and they have been streamlined in the amendments," Sarojini Kadurugamuwa, Director Legal at the Central Bank told The Sunday Times FT.

Under amendments relating to consolidation and mergers, banks seeking to merge must submit a proposal to the Central Bank which would be approved after the interests of the banking system are considered. Kadurugamuwa said these amendments would lead to a dialogue between the Central Bank and the banks. "Most importantly, consolidations and mergers will not just happen out of the blue in the market without anyone knowing about it," she said.

Amendments with regard to financial statements stipulate that the regulator can demand certain disclosures be made in the financial statement in the interest of transparency. Kadurugamuwa said a "fit and proper test" seeking to establish the integrity and honesty of the Directors will incorporated in the amendments.

"We are recognising not only that the Central Bank can look at the character of the directors but that the banks are also responsible for ensuring that their directors and senior officers carrying out critical functions are fit and proper," she said, adding that this requirement will also apply to major shareholders.

Back to Business