COLOMBO STOCK EXCHANGE
THE EVOLVING WORLD OF REGULATIONS IN A DYNAMIC CAPITAL MARKET
Vice President – Regulatory Policy of the Colombo Stock Exchange (CSE) Malisa Amarakoon discusses the evolving regulatory landscape shaping Sri Lanka’s capital market. An attorney at law with 15 years of corporate experience, she has been closely involved in regulatory initiatives aimed at strengthening investor and issuer confidence.
Q: The Securities and Exchange Commission of Sri Lanka (SEC) Act No. 19 of 2021 marked a major shift in Sri Lanka’s capital market regulation. What were some fundamental changes it introduced from the CSE’s perspective?
A: The main objectives of the act are to promote a fair, orderly, transparent and efficient securities market in Sri Lanka while enhancing effective and efficient functioning of the market, and mitigating systemic risks associated with securities trading.
Among its key reforms, the act introduces a comprehensive framework for market institutions – formally recognising exchanges, clearing houses and central depositories as separate market infrastructure. These institutions are now required to be licensed and operate under a dedicated regulatory regime with prescribed governance, operational reporting, compliance and financial requirements.
The act also establishes a more structured framework for licensing and regulating market intermediaries, operators, registered persons and other market participants.
In addition, it enhances the enforcement and supervisory powers of the SEC, enabling it to issue directives, conduct investigations, impose administrative sanctions, initiate civil actions and pursue criminal proceedings in cases of market misconduct, thereby ensuring investor protection.
Furthermore, the act introduces a modern and comprehensive market misconduct regime relating to insider trading, market manipulation, misleading statements and other prohibited practices with the aim of safeguarding investors and maintaining market integrity.
Q: How do rule amendments and implementations align Sri Lanka’s capital market with international regulatory standards?
A: International capital market regulatory standards are globally accepted principles and best practices, primarily developed by the International Organisation of Securities Commissions (IOSCO) to promote investor protection, market integrity, transparency, effective supervision and financial stability in securities markets.
The main legislation governing Sri Lanka’s capital market, the SEC Act No. 19 of 2021, was drafted with these principles in mind, ensuring closer alignment between the country’s regulatory framework and internationally recognised standards.
In this context, the CSE seeks to ensure that any rule amendments or new implementations are within international regulatory standards. This is achieved by strengthening investor protection, enhancing corporate governance, promoting market integrity, modernising market infrastructure and improving regulatory oversight.
Q: What gaps or limitations in the previous framework do the upcoming listing rules aim to address?
A: Pursuant to the implementation of the act, the CSE undertook a comprehensive review of its rule books to ensure alignment with the new legislative framework. The ongoing revision of the listing rules represents the final stage of this process.
The new listing rules seek to address limitations relating to outdated provisions, regulatory complexity, disclosure standards and corporate governance expectations. They also seek to strengthen enforcement mechanisms, streamline regulatory processes, and accommodate evolving market practices and new products.
Q: How does the CSE identify when its regulatory framework needs to evolve? And to what extent are such changes driven by market behaviour rather than legislative or SEC directives?
A: The CSE’s regulatory framework evolves through a combination of market driven observations, legislative developments and SEC directives with the relative influence of each depending on the nature of the issue being addressed.
The need for regulatory evolution is identified through ongoing market surveillance, stakeholder engagement, operational experience and benchmarking against international standards. Legislative amendments and SEC directives remain important drivers of reform.
Increasingly, however, regulatory developments are also influenced by market behaviour, emerging risks, technological innovation and evolving investor expectations.
Q: How do emerging products and innovations in the market influence regulatory decision making?
A: Emerging products and innovations play a major role in shaping regulatory decision making as regulators must strike a balance between facilitating market development and maintaining investor protection, market integrity and financial stability.
New products often do not fit neatly within existing rules. As a result, regulators assess – often through international benchmarking and stakeholder engagement – whether current regulations adequately address the risks associated with such innovations or if additional regulatory measures are required.
At the same time, excessive regulation can hinder innovation and market growth. Therefore, the objective is to balance innovation with appropriate safeguards.
Q: Could you walk us through the role of stakeholder consultation in shaping major regulatory updates…
A: Stakeholder consultation is a cornerstone of effective regulatory development. It enables the CSE to obtain practical market insights, assess impact of proposed frameworks, enhance transparency and market acceptance, and ensure that regulatory updates achieve their intended objectives while remaining proportionate, effective and aligned with evolving market needs.
The CSE typically seeks feedback from listed entities, market participants, professional bodies and regulators prior to implementing new regulatory frameworks. It has also recently established a consultative committee consisting of veterans from various industries to assess and provide feedback on proposed regulatory updates.
Q: Would you describe CSE’s regulatory evolution as more proactive or reactive today? And where is the balance shifting?
A: While the CSE’s regulatory framework has historically evolved in response to market developments and regulatory needs, recent reforms demonstrate a clear shift towards a more proactive approach.
Increasingly, the focus is on anticipating risks, strengthening market infrastructure, enhancing investor protection and aligning with international standards and practices.
Furthermore, the CSE remains committed to supporting market growth, innovation and even foreign investor participation. However, taking a reactive approach in certain instances is inevitable as regulators must respond to emerging market and regulatory developments.
Q: How does the CSE ensure that regulatory language and frameworks remain clear and accessible to issuers and investors?
A: This is achieved through structured rule drafting, stakeholder consultations and the timely publication of new rules and amendments following regulatory approvals.
These are supported by guidance materials, circulars, continuous engagement with issuers and intermediaries, dedicated compliance support and ongoing investor education initiatives.
Q: How do the new dispute resolution rules strengthen investor confidence in the market?
A: The introduction of the CSE’s dispute resolution framework pursuant to SEC Act No. 19 of 2021 enhances investor confidence by providing an efficient, transparent and accessible mechanism for resolving investor grievances.
Investors who have disputes with trading participants or other market participants now have access to a structured mechanism for seeking redress without resorting to court proceedings.
The framework adopts a multi-tier dispute resolution approach that promotes settlement before formal adjudication. Timely resolution of disputes reduces uncertainty for investors and minimises disruption to their investment activities.
A standing independent dispute resolution panel was also established by this framework. Panel members are appointed by the CSE’s board with the concurrence of the SEC. This encourages market participants to maintain high standards of conduct, knowing that their actions would be subject to review through an impartial and structured process. – Compiled by Prashanthi Cooray
CONTACT DETAILS
Telephone: 2356456
Email: info@cse.lk
Website: www.cse.lk
