The Securities and Exchange Commission of Sri Lanka (SEC), in September 2023, released the updated Corporate Governance Regulations for entities listed on the Colombo Stock Exchange (CSE). The revisions come after nearly 15 years and apply to companies listed on the Main Board and Diri Savi Board, with a majority of the rules effective from 1 October 2023.
The updated regulations, in line with international best practices, seek to offer clear directives for implementing effective Board and management practices. High standards of Corporate Governance, together with accountability and transparency, are essential for bolstering investor trust in the capital markets. This framework also provides listed entities the opportunity to enhance investor confidence and attract much-needed investments. Furthermore, it also provides the opportunity for Sri Lankan capital markets to operate in line with other progressive capital markets globally.
Some of the main updates to the regulations include matters relating to criteria for ‘independence’ of directors and changes to the composition of Audit, Remuneration, and Related Party Transaction Committees. In addition, several new regulations were also introduced. Some of the key additions include the establishment of the Nomination and Governance Committee, the minimum number of board members and maximum age of a board director, segregation of the position of Chairman and Chief Executive Officer, the appointment of a Senior Independent Director in specific instances, and ‘Fit and Proper’ Assessment Criteria for directors and CEOs.
Furthermore, the regulations also stipulate that listed entities establish policies related to the internal code of business conduct and ethics for all directors and employees, relations with shareholders and investors, whistleblowing, and anti-bribery and corruption.
In formulating the rules, the SEC and CSE invited public consultations during the period from 2021 to 2023, to receive views from key participants of the capital markets. Post introduction, the regulators also conducted a number of awareness sessions for the listed companies in the banking sector, insurance sector, and several other sectors.
In its capacity as a leading professional body representing investment professionals in Sri Lanka, CFA Society Sri Lanka (CFASSL) has been a powerful voice on local advocacy issues such as the drafting of new regulations, corporate governance and setting standards of best practices.
President of CFASSL Aruna Perera, CFA noted: “The Society commends the SEC and the CSE for making the much-needed updates to the corporate governance regulations for listed entities. Since its inception, CFASSL has worked closely with the regulators, advocating for good governance, and was pleased to be a part of the public consultations providing recommendations on matters related to the independence of directors, maximum age of independent directors, and roles of CEO and Chairperson of the Board.”
Chairperson of the Advocacy Committee, CFASSL, Nadika Ranasinghe, CFA, commenting on the new regulations noted: “We welcome the updated Corporate Governance regulations by the SEC and commend the regulators on the positive direction being taken to position Sri Lankan capital markets in the global space. We look forward to seeing listed entities proactively adopting these regulations in a timely manner and working towards improving investor confidence. The Society will continue to advocate for stronger governance, assisting both the regulators and capital market participants to strive for good standards.”
CFA Institute is the global association of investment professionals that sets the standard for professional excellence and credentials. Founded in 2001, CFA Society Sri Lanka is a not-for-profit organisation supporting the professional development and advancement of CFA Charterholders and candidates in Sri Lanka. Its membership of over 275 members consists of CEOs, CFOs, portfolio managers, equity analysts, banking professionals, investment advisors and other senior-ranking financial practitioners, and over 300 candidates, mainly in the financial sector.