The government is planning to bring dozens of superannuation (private and provident) funds, currently registered with the Commissioner of Labour, under the supervision and regulation of the Insurance Board of Sri Lanka (IBSL) in a move that is being supervised by the Central Bank (CB), informed sources said.
The plan is designed to better regulate these funds while paving the way for some of it to be invested in the capital market, the sources said. Presently, there are about 170 such private provident and pension funds with about 150,000 members and assets amounting to nearly Rs. 125 billion.
“Although these funds are regulated by the Labour Commissioner, the supervision does not include prudential rules and guidelines. The absence of a regulatory and supervisory system for private superannuation funds has been identified as one of the gaps in the regulation of the financial system,” a highly-placed source told the Business Times. The CB has also proposed that all these funds, except for the Employees' Provident Fund (EPF) be supervised by IBSL against an earlier suggestion as to whether a separate regulator should be set up.
“The rationale to exclude the EPF is because its funds are managed by the Monetary Board which is the apex financial regulatory authority,” the source said. All commercial banks, Unilevers, Sri Lanka Telecom and Mercantile Sector Provident Funds Society, John Keells Holdings are among institutions that have their own superannuation funds, set up before the EPF came into being more than 50 years ago. In 1996, laws were brought in prohibiting the creation of new private funds. Now the CB says that setting up of a regulatory authority could pave the way towards removing this restraint.
“The CB says that IBSL is best placed to manage these funds as the fund managers of a life insurance fund are similar to fund managers of a superannuation fund. The CB has already drabted the law and corresponded with the IBSL and the Labour Commissioner with regard to the law,” the source added.
At a Securities and Exchange Commission (SEC) press conference early last month, then chairman SEC and IBSL, Udaya Sri Kariyawasam noted that the CB and IBSL are looking to better the regulatory structure for approved superannuation funds to invest in the capital market.
The CB, in a letter to the IBSL and SEC, has said that there is a need for a new or upgraded regulatory and supervisory regime to ensure the safety of member funds.
This move is expected to provide a boost for the development of the capital market in the country as such funds are traditionally considered to be major institutional investors in the medium and long term securities markets.
However some industry stakeholders say that the initiative should be to allow the Labour Department continue to assume this role in managing these funds with greater powers. “This can be done under the EPF Act. These funds have been managed by the Commissioner for decades. Amendments need to be made to the EPF Act for these funds to be managed prudentially. It does not make sense for IBSL to manage them,” an industry stakeholder said.
But CB sources said that the Commissioner only does an administrative function and that better regulation will see these funds managed better. In 2001-2002, there was a similar call for an independent regulator to manage these funds as some of them were caught up in fraud and corruption perpetrated by senior management where employees lost some or all their money, but that exercise didn’t succeed. However most of these funds are managed well and have provided better returns than government funds, sources in the private sector said. |
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