Financial Times

New laws covering bank directors
By Duruthu Edirimuni
Under proposed amendments to the Banking Act, a "fit and proper criteria" is being laid down for those managing banking and financial institutions. Under the amendments to the Banking Act, a director or an employee of a licensed commercial bank (LCB) shall not be appointed, elected or nominated as a director of another LCB or a licensed specialised bank (LSB) except where such a LCB or a LSB is a subsidiary company or an associate company of the first mentioned LCB.

At present there are about two or three directors of banks who fit this category. "The Financial Sector Cluster (FSC) appointed by the National Council for Economic Development (NCED) has immediate plans to get the Banking Act amendments through," Dr. Ranee Jayamaha, Deputy Governor, Central Bank told The Sunday Times FT, in an exclusive interview.

The Financial Sector Reforms Committee (FSRC) which was functioning at the CBSL with its members coming from the Finance Ministry, the banking and private sectors has been renamed the FSC and comes under the NCED. Jayamaha said some reforms that are proposed are of a legal nature and are designed to empower the Central Bank to have more authority to handle financial institutions.

"The FSC's agenda include key and critical financial sector reforms areas that need to be addressed immediately in the short term and some reforms that are continuing to the medium and long term. FSC also prioritised some of the reforms that were not implemented over the last two to three years," she said.

She explained that the FSC prepared a matrix in which it outlined the actions that are needed urgently to go ahead with the reforms process, including the actions that can be taken between now and December, those that could be taken in the medium term which is from January to June next year and beyond that as long term reforms.

She said that the most important element introduced to the FSC compared to the former FSRC is the continuous involvement of the Secretary and the Deputy Secretary of the Ministry of Finance in work of the cluster. She sees this as the main reason for fast tracking the financial reforms. "In the FSRC, most of the reforms have to be referred to a unit in Ministry of Finance but in the FSC by directly involving the Secretary and the Deputy Secretary to the Ministry of Finance, things move much faster," she said.

She also said that the NCED Secretariat monitors the FSC's work ensuring results on target dates. Jayamaha said three pieces of legislation have been identified by the FSC as a priority for implementation. The Banking Act Amendments and Payments Transaction Law are expected to go before Parliament by the end of this year while the Money Laundering Law will be presented early next year.

"We had to come up with new provisions to combat pyramid and network marketing schemes, Ponzi schemes and any other undesirable schemes that threaten the financial system," she noted.

The FSC has summarised the policy papers of the 'money laundering legislation' and called for representations from stakeholders. "There are many money launderers threatening to come to Sri Lanka, because of restrictions in other countries," she said, adding that without appropriate laws the financial system will be very vulnerable and money launderers can whitewash their money in Sri Lanka.

She emphasised the need for a 'Financial Intelligence Unit' to which suspected transactions can be reported. FSC has finalised a Payments Transaction Law to deal with the retail payments and settlements. "In Sri Lanka, bulk of the payments are done through cheques that need to be transported on the road from one place to another, which is very risky," she said, adding that there are many delays, because the outstation cheques take seven to 10 days to get cleared. To overcome this, a Cheque Imaging and Truncation system will be introduced.

"This requires a separate law, because the current law says that the physical cheque has to be presented for clearance and also as evidence in a court of law," she said. The Cabinet paper, for this law has been approved. This system will enable all island cheques to be cleared within one to two days and the infrastructure for the system will be put in place by next June. The Finance Leasing Act for Securitisation of lease receivables is being pursued by the FSC as a medium term reform.

"The Finance Leasing Act needs a legal amendment and the Central Bank after discussions with the relevant parties has drafted an Act and a Cabinet paper, which should be passed in parliament by the end of this year or beginning next year," Jayamaha said.

The Ministry of Justice is also preparing laws pertaining to financial transactions, electronic transactions, computer crimes, data protection and various amendments to the Companies' Act. "The Ministry of Justice has said that some of these laws will be drafted by the end of this year," she said.

To widen access to finance, setting up of Small and Medium Enterprise (SME) units has been proposed. "The FSC has requested commercial banks to take action and set up SME units wherever possible," she said, adding that this will ensure enhanced access to finance.

The FSC has proposed to reform the Credit Information Bureau to provide positive information about customers to financial institutions, together with information on SMEs and micro enterprises. Further, the National Savings Bank (NSB) / Postal network will be reformed to enable outstation customers to have easy access to the network centers, which will also facilitate migrant worker remittances.

The cluster is co-chaired by Dr Jayamaha and S.B. Divaratne, Deputy Secretary to the Ministry of Finance and Nihal Fonseka, Vajira Kulatillake, Anil Amarasuriya, S. Seneviratne, N.B.S.B. Balalle, Asoka de Silva, Shihana Samad and Kapila Jayawardena are members.

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