Financial Times

Regulators and image problems
That Dr. Dayanath Jayasuriya, the former director-general of the Securities and Exchange Commission, should return to the organisation he quit in disgust - this time as chairman - seems particularly appropriate given the circumstances of his departure two years ago. In some ways it is a vindication of his stand on the controversial insider dealing case involving a former SEC chairman.

The manner in which a former set of commissioners interfered with the investigation and later tried to prevent the SEC Secretariat from taking court action prompted Jayasuriya's abrupt resignation from the position of director general.

The other gentlemen on the commission at the time against whom Jayasuriya levelled allegations of interference and conflict of interest did not have the courage to resign in the same way Jayasuriya did, even after they had been rapped on the knuckles for having acted improperly by no less a person than the Attorney General himself for seeking a second opinion on the AG's Department's advice that there was enough evidence to prosecute the accused.

The unprecedented investigation by the SEC Secretariat against its own chairman and Jayasuriya's resignation over the issue gave both him and the secretariat a reputation for fearlessness and integrity and unbiased action in a market that is widely perceived to have numerous imperfections.

There is a need for tough regulation and enforcement of rules given the perceptions that the stock market is controlled by a small cabal of rich investors who are usually privy to inside information. This is a situation that is not as far-fetched as it seems given the incestuous nature of Colombo's small, elitist corporate world and the numerous informal links that connect executives outside the boardroom.

We have published many complaints especially from small investors that the market is manipulated, that company accounts and corporate governance is not as good as it should be, and that regulators are not effective enough in preventing abuse. It is certainly true that many of these complaints are exaggerated and are a reflection of the ignorance and lack of expertise of small players in the stock market. But it would be wise to pay attention to their complaints and concerns if the authorities want to broad base the stock market. It is the millions of small investors who will be able to provide the required depth to the market, the lack of which is one reason for the difficulty in attracting big foreign funds to the bourse.

While some members of the broking community might disagree with the need for tougher rules, on the grounds that more red tape and intrusive rules would only stifle the market and drive away big investors, many small investors feel that enforcement is not good enough. They are unlikely to risk investing their hard-earned money in shares if they lack faith in the institutions that are supposed to protect their interests.

The return of Jayasuriya therefore is a welcome boost to the reputation of market regulators. The credibility of the SEC suffered after his abrupt resignation. The fiasco over the Pramuka Bank damaged the image of another regulator, the Central Bank, although the latter has redeemed its reputation by its proactive and aggressive moves to fight the perpetrators of another scam, that of pyramid and network marketing schemes.

In Jayasuriya, the SEC has what could be called a 'hands-on' chairman with experience in market regulation as opposed to some of his predecessors who were retired corporate big wigs. As non-executive chairman of the SEC, Jayasuriya is now in a position to ensure the SEC director general and secretariat can function independently and free of interference in the way he campaigned for during his previous tenure in the organisation.

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