Capital markets development within 8 years

The Rules on Corporate Governance for Listed Companies, formulated by the Securities and Exchange Commission of Sri Lanka (SEC) and the Institute of Chartered Accountants of Sri Lanka (ICASL) in consultation with the Colombo Stock Exchange (CSE) have been incorporated into the Listing Rules of the Colombo Stock Exchange with a view to enforcing mandatory compliance by companies listed on the Colombo Stock Exchange. These new rules are being made mandatory to be published in the Annual Reports of these companies from April 1 this year.

A 10-year capital market development master plan has been devised by the Securities and Exchange Commission (SEC) of Sri Lanka and accepted by the government.

The master plan emphasised the need forf implementing regulatory mechanisms for better corporate governance for companies to win the confidence of investors and stakeholders. This was disclosed by the Director General of the Securities and Exchange Commission Channa de Silva when he addressed the opening session of a series of interactive seminars organized to create awareness on new corporate governance rules among directors of listed companies in Colombo this week.

He added that that the SEC is very keen on implementing provisions of the 10-year within an eight-year period with a view to bringing new products to the capital market.

The Rules on Corporate Governance for Listed Companies, formulated by the Securities and Exchange Commission of Sri Lanka (SEC) and the Institute of Chartered Accountants of Sri Lanka (ICASL) in consultation with the Colombo Stock Exchange (CSE) have been incorporated into the Listing Rules of the Colombo Stock Exchange with a view to enforcing mandatory compliance by companies listed on the Colombo Stock Exchange. These new rules are being made mandatory to be published in the Annual Reports of these companies from April 1 this year. It will be made mandatory for these companies to comply with these new rules by April 1, 2008, he said.

These standards relate to the minimum number of non-executive and independent directors, the basis for determining ‘independence', disclosures required to be made by listed companies in respect of its directorate, the minimal requirements to be met by listed companies in respect of the audit committee and the remuneration committee.

These rules are to be implemented in two stages so that listed companies have adequate time to become compliant. In the first instance, it will be mandatory for listed companies to publish a table in the Annual Report relating to the financial year commencing on or after April 1, 2007 confirming that as at the date of the Annual Report they comply with the Corporate Governance standards set out in the Listing Rules and if not, explain why the company has not complied with identified items.

In the second stage, it will be mandatory for listed companies to comply with the Corporate Governance standards in the Listing Rules with effect from the financial year commencing on or after April 1, 2008 and the Annual Report must contain the relevant affirmative statements.

Failure to comply with these rules will attract the penalties relating to the violation of a Listing Rule. The specially appointed committee which formulated these Corporate Governance standards comprised eminent personalities representing different spheres of corporate affairs together with representatives of the SEC.

Delivering the key note address, Governor of the Central Bank Ajith Nivard Cabraal said that non executive Directors and Independent Directors are very important for good corporate governance. He added that the new rules on corporate governance would ensure better relations between auditors, directors and shareholders.

The governor said that no one could deny the fact that Sri Lanka was marching towards prosperity with the acceleration of economic activities and it has achieved an economic growth of 7.4 percent due to active involvement of the private sector.
A private sector driven development is evident in the country at present he said.

Acceleration of economic activity in Sri Lanka should engulf the entire nation and this could be enhanced with good corporate governance that would be made mandatory by 2008.

The Central Bank Governor asserted that the benefit of economic development should trickle down to rural areas as well. CSE Chairman Nihal Fonseka emphasized the need for the deployment of corporate governance as mandatory in the wake of recent developments that have taken place worldwide.