Appropriate directions should be issued to licensed primary dealers to enhance the good governance framework avoid potential risks of unethical business practices, misselling, misrepresentation and misleading advertising and promotions leading to financial scams and/or investors being misled.
Former Chairman of the Ceylon Chamber of Commerce (CCC) Chandra Jayaratne outlined his recommendations and appropriate directions to be issued to primary dealers in a recent letter sent to Deputy Governors of the Central Bank (CB), W.A. Wijewardene and Dr. Ranee Jayamaha. In his letter, Mr. Jayaratne said primary dealers should be able to engage in and operate solely in business areas as defined and included in the license issued by the CB. Primary dealers should be prohibited from directly or indirectly engaging in marketing, distribution activities, fund collections for and on behalf of any third parties, persons or business entities or be engaged in selling promoting or collecting investments and funds to be channeled to or handed over for management by any subsidiary, associate or parent company.
He also recommended that all advertising and promotional material, sales presentations and investor/prospect related communications to be clearly set out the limitations referred to above. Primary dealers should be issued with guidelines on disclosure of marketed financial services products and their expected long/short term returns and benefits.
Further they should be issued with binding regulatory commitments, compliance and control measures in respect of client funds collected. ‘Fit and Proper’ qualifications should be applicable to directors and officers of Primary Dealers to be issued by the CB.
Under the hand of the CEO and CFO, primary dealers should submit statements of Compliance and Ethical and Professional Conduct to the CB every quarter. Other recommendations include agreeing with the Institute of Chartered Accountants of Sri Lanka the applicable Disclosure Standards for Accounting Statements, and the Standards for Audit and Audit Reports and agreeing with the Accounting Standards Monitoring Board the process for review and reporting on compliance by primary dealers.
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