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SEC to amend act making Commissioners more independent
Link: http://lankabusinesstoday.com/news/market/1120-independent-regulators
Feb 1, 2012 (LBT) - Aligning Market Watchdog Sri Lanka SEC’s governance and international cooperation framework with International Organization of Securities Commissions (IOSCO’s) objectives and principles of Securities Regulation; SEC had recently published a consulting paper to propose amendments to Part I of the SEC Act.
Accordingly the Part V of a series of consultation papers on the modernization of the SEC Act which is available for public comments suggests that the existing section 5 and 8 of the SEC Act is proposed to be amended to provide circumstances when the Minister may appoint a person to be a member of the Commission and circumstances when he may exercise his powers to terminate the appointment of members and Chairman of the Commission.
Accordingly the proposed amendment to the SEC Act will introduce new subsections (3) and (4) to the existing section 3. The new subsection (3) will provide additional criteria which the Minister will consider before appointing a person as a member of the Commission.
The proposed criteria for the appointment of a person as Commissioner or Chairman are that person’s probity and standing; and the likelihood of any conflict between the interests of the Commission and any interest which that person has or represents.
Further The new subsection (4) on the other hand will provide circumstances which will disqualify a person from being appointed or remaining as a member of the Commission. And as per suggested amendments a person will be disqualified if he is or become; Member of Parliament, a member of any Provincial Council or any local authority; a director of an entity under the supervision of the Commission; or involved in any activity which may interfere with his independence in discharging his duties.
In despite these amendments that are yet to come; it had been evident according to market sources that recent times and a few years ago a few vacant posts including the Chairman and few SEC Commissioners were filled up with several individuals who already had a numerous number of vested interests that did not comply with market watchdog’s reputation as an independent regulatory body.
However the new amendment also suggest that under the ‘Removal of a member of the Commission’ section the existing sub-section 5(2) of the SEC Act will be replaced with a new sub-section 5(2) which provides clear criteria for the removal of a member of the Commission by the Minister.
Accordingly a member may be removed from office by the Minister; if such a member becomes of unsound mind or incapable of carrying out his duties; if he is guilty of serious misconduct in relation to his duties; or if he is absent, except on leave granted by the Minister in the case of the Chairman, or by the Chairman in the case of all other members, for three consecutive meetings.
Further if he fails to comply with his obligations under section 9; or if he is disqualified under section 3; and on any other grounds which the Minister deems fit the Commissioner.
SEC in its consultation paper notes that Part I of the SEC Act provides for the establishment and the constitution of the SEC. It contains provisions, amongst others, on membership of the Commission, the meeting of the Commission and the removal and resignation of members and the Chairman of the Commission. Thus Section 5 and 8 of the SEC Act provides that the Minister may, without assigning any reason therefor remove any appointed member of the Commission and terminate the appointment of the Chairman respectively.
The paper notes that although SEC Sri Lanka is a signatory of IOSCO’s MMOU and has entered into several bilateral MOU, the SEC Act does not contain an express provision which enables the SEC to respond to a request for assistance to investigate into a breach of legal or regulatory requirement which the foreign regulator enforces. The SEC Act also does not have an express provision which allows the SEC to share information with other domestic regulatory bodies.
The proposed amendments to the act are based on the IOSCO Principles which state that the Regulator should be operationally independent and accountable in the exercise of its functions and powers. The IOSCO further outlines in its Principals that the Regulator should have authority to share both public and non-public information with domestic and foreign counterparts and that regulators should establish information sharing mechanisms that set out when and how they will share both public and non-public information with their domestic and foreign counterparts.
Thus SEC in its consultation paper suggests that as a signatory to IOSCO’s MMOU it is important for the governance structure of the SEC to reflect IOSCO’s principles which requires the regulator to be operationally independent.
“This is often interpreted to mean that the regulator must be free from business and political interference in the discharge of its duties and function.” SEC notes adding that in order to incorporate some check and balance on the regulator, it is quite common for the legislature to provide for some powers of oversight by the Minister over the regulator.
However in the consultation paper it further notes that the exercise of the Minister’s power however must be premised on clear and objective considerations which are made transparent in the statute.
The paper further goes in to explain that In the aftermath of the global financial crisis in 2009, IOSCO published a consultation report on The Impact On and Responses of Emerging Markets to the Financial Crisis. Accordingly key result area highlighted by IOSCO following the consultation process is that greater attention should be placed on using co-operation and coordination to reduce the potential risk of contagion from interconnectedness of modern capital markets to ensure that the international capital markets continue to grow and develop.
Further in order to maximise opportunities for regulatory co-operation and to reduce regulatory arbitrage, the report states that there must be concerted efforts by all jurisdiction to review their legal and regulatory framework in line with best practices highlighted by Securities and Exchange Commission of Sri Lanka.
In this regard, section 5(2) and 8(2) of the SEC Act which enables the Minister to remove the appointment of members and terminate the appointment of the Chairman without assigning any reasons whatsoever may not sit well with Principle 2 of IOSCO principles relating to the regulator. While the Minister may be given such powers, the reasons for the termination of the appointment should be clearly stipulated to ensure that the discretion will be exercised objectively. In some jurisdiction, the Minister may be given some residual power to terminate the appointment of a member or the Chairman for reasons which the Minister deems fit. Such residual power is however given in addition to clear objective criteria in the law.
SEC to amend act making Commissioners more independent
Link: http://lankabusinesstoday.com/news/market/1120-independent-regulators
Feb 1, 2012 (LBT) - Aligning Market Watchdog Sri Lanka SEC’s governance and international cooperation framework with International Organization of Securities Commissions (IOSCO’s) objectives and principles of Securities Regulation; SEC had recently published a consulting paper to propose amendments to Part I of the SEC Act.
Accordingly the Part V of a series of consultation papers on the modernization of the SEC Act which is available for public comments suggests that the existing section 5 and 8 of the SEC Act is proposed to be amended to provide circumstances when the Minister may appoint a person to be a member of the Commission and circumstances when he may exercise his powers to terminate the appointment of members and Chairman of the Commission.
Accordingly the proposed amendment to the SEC Act will introduce new subsections (3) and (4) to the existing section 3. The new subsection (3) will provide additional criteria which the Minister will consider before appointing a person as a member of the Commission.
The proposed criteria for the appointment of a person as Commissioner or Chairman are that person’s probity and standing; and the likelihood of any conflict between the interests of the Commission and any interest which that person has or represents.
Further The new subsection (4) on the other hand will provide circumstances which will disqualify a person from being appointed or remaining as a member of the Commission. And as per suggested amendments a person will be disqualified if he is or become; Member of Parliament, a member of any Provincial Council or any local authority; a director of an entity under the supervision of the Commission; or involved in any activity which may interfere with his independence in discharging his duties.
In despite these amendments that are yet to come; it had been evident according to market sources that recent times and a few years ago a few vacant posts including the Chairman and few SEC Commissioners were filled up with several individuals who already had a numerous number of vested interests that did not comply with market watchdog’s reputation as an independent regulatory body.
However the new amendment also suggest that under the ‘Removal of a member of the Commission’ section the existing sub-section 5(2) of the SEC Act will be replaced with a new sub-section 5(2) which provides clear criteria for the removal of a member of the Commission by the Minister.
Accordingly a member may be removed from office by the Minister; if such a member becomes of unsound mind or incapable of carrying out his duties; if he is guilty of serious misconduct in relation to his duties; or if he is absent, except on leave granted by the Minister in the case of the Chairman, or by the Chairman in the case of all other members, for three consecutive meetings.
Further if he fails to comply with his obligations under section 9; or if he is disqualified under section 3; and on any other grounds which the Minister deems fit the Commissioner.
SEC in its consultation paper notes that Part I of the SEC Act provides for the establishment and the constitution of the SEC. It contains provisions, amongst others, on membership of the Commission, the meeting of the Commission and the removal and resignation of members and the Chairman of the Commission. Thus Section 5 and 8 of the SEC Act provides that the Minister may, without assigning any reason therefor remove any appointed member of the Commission and terminate the appointment of the Chairman respectively.
The paper notes that although SEC Sri Lanka is a signatory of IOSCO’s MMOU and has entered into several bilateral MOU, the SEC Act does not contain an express provision which enables the SEC to respond to a request for assistance to investigate into a breach of legal or regulatory requirement which the foreign regulator enforces. The SEC Act also does not have an express provision which allows the SEC to share information with other domestic regulatory bodies.
The proposed amendments to the act are based on the IOSCO Principles which state that the Regulator should be operationally independent and accountable in the exercise of its functions and powers. The IOSCO further outlines in its Principals that the Regulator should have authority to share both public and non-public information with domestic and foreign counterparts and that regulators should establish information sharing mechanisms that set out when and how they will share both public and non-public information with their domestic and foreign counterparts.
Thus SEC in its consultation paper suggests that as a signatory to IOSCO’s MMOU it is important for the governance structure of the SEC to reflect IOSCO’s principles which requires the regulator to be operationally independent.
“This is often interpreted to mean that the regulator must be free from business and political interference in the discharge of its duties and function.” SEC notes adding that in order to incorporate some check and balance on the regulator, it is quite common for the legislature to provide for some powers of oversight by the Minister over the regulator.
However in the consultation paper it further notes that the exercise of the Minister’s power however must be premised on clear and objective considerations which are made transparent in the statute.
The paper further goes in to explain that In the aftermath of the global financial crisis in 2009, IOSCO published a consultation report on The Impact On and Responses of Emerging Markets to the Financial Crisis. Accordingly key result area highlighted by IOSCO following the consultation process is that greater attention should be placed on using co-operation and coordination to reduce the potential risk of contagion from interconnectedness of modern capital markets to ensure that the international capital markets continue to grow and develop.
Further in order to maximise opportunities for regulatory co-operation and to reduce regulatory arbitrage, the report states that there must be concerted efforts by all jurisdiction to review their legal and regulatory framework in line with best practices highlighted by Securities and Exchange Commission of Sri Lanka.
In this regard, section 5(2) and 8(2) of the SEC Act which enables the Minister to remove the appointment of members and terminate the appointment of the Chairman without assigning any reasons whatsoever may not sit well with Principle 2 of IOSCO principles relating to the regulator. While the Minister may be given such powers, the reasons for the termination of the appointment should be clearly stipulated to ensure that the discretion will be exercised objectively. In some jurisdiction, the Minister may be given some residual power to terminate the appointment of a member or the Chairman for reasons which the Minister deems fit. Such residual power is however given in addition to clear objective criteria in the law.
