SEC introduces Code for Collective Investment Schemes

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The Securities and Exchange Commission of Sri Lanka (SEC), the securities market regulator has prepared Rules pertaining to Market Institutions, Market Intermediaries and a Code for Collective Investment Schemes following the enactment of the new Securities and Exchange Commission Act No. 19 of 2021, the SEC statement stated yesterday (4).

According to the statement, these Rules which were made in terms of the powers vested in the Commission under Section 183 of the Act.  The Rules in respect of Market Institutions and Market Intermediaries were published in the Gazette Extraordinary bearing Number 2271/09 and 2271/10 dated 15 March 2022 whilst the Rules in respect of Collective Investment Schemes which will be known as the “CIS Code” was published in the Gazette Extraordinary bearing Number 2278/2 and dated 07 May 2022. They come in to force from the date of the respective Gazette Notices.

The key components of the Rules for the three Market Institutions, namely an Exchange, a Central Depository and a Clearing House, include the licensing procedure, minimum financial requirements, reporting and infrastructure requirements, governance structures, compliance and internal controls etc. In addition, these Rules embody detailed criteria for fitness and propriety of key management persons of market Institutions and has introduced the important role of a compliance officer whose responsibility is to ensure that the Market Institution at all times complies with applicable laws, rules and regulations and submits a compliance report to the Commission periodically.

The new SEC Act has redefined “Market Intermediaries” and has included a range of new Market Intermediaries such as corporate finance advisers, derivatives brokers, derivatives dealers and market makers.  The newly gazetted Rules pertain to eight Market Intermediaries. They are Investment Managers, Margin Providers, Credit Rating Agencies, Underwriters, Stock Brokers, Stock Dealers, Managing Companies and Corporate Finance Advisers. They cover the licensing procedure, minimum financial and infrastructure requirements, qualifications and experience required for persons dealing with clients, maintenance of books and records, ceasing of operations etc. Rules in respect of market makers are being prepared with the assistance of experts from the Asian Development Bank and Rules in respect of derivative brokers and dealers will be published when derivatives are to be introduced.

Similar to the provisions contained in the Rules for Market Institutions, the Rules for Market Intermediaries require them to have a compliance officer whose duties have been clearly spelt out. The key management persons are required to submit an affidavit at the time of their appointment and at the time of renewal of the license affirming compliance with the criteria stipulated for fitness and propriety.