Central Bank defends EPF investments


The Central Bank is stoutly defending itself against repeated criticism from the opposition and other quarters over investing Employees’ Provident Fund (EPF) money in the stock market, particularly the banking sector.

Central Bank’s EPF Superintendent Kalyanee Gunatilake said only a marginal amount of the EPF — 5.8 per cent – had been invested in the banking sector and in some of the best companies in the market with the consent of the Central Bank Monetary Board which included Treasury Secretary P.B. Jayasundera. The other investments were in government securities.

The Monetary Board was entrusted with the responsibility of managing the Fund, and the EPF division was carrying out its directions, she claimed.

On Thursday, Opposition UNP leader Ranil Wickremesinghe demanded that investments so far made with the EPF and ETF (Employees Trust Fund) money be revealed to Parliament.

He told Parliament that the media had carried news items alleging fraud and market manipulations in share transactions. He said EPF and ETF money had been used to buy shares of companies whose value was being pushed up by speculators.
But the Central Bank said the EPF�money had to be diversified into other areas as government securities no longer brought high returns — with interest rates likely to come down in the future.

Ms. Gunatilake said there was no legal barrier to investing in banking sector stocks and an internal protection system was in place to avoid conflict of interest or insider dealing in EPF stock market transactions.

This week, global rating agency Standard and Poor’s (S&P), in a report, also highlighted the Central Bank’s conflict of interest in banking sector share transactions.

In response, the Central Bank said the EPF Department functioned independently from all other departments of the Bank, with stringent firewalls established for this purpose. “These are adhered to at all times and the integrity of the Bank or the EPF is not compromised in any way,” the Bank said.

Ms. Gunatilake said these investments were made with proper approval process and after conducting due diligence and stock market research. This sector was expected to provide high returns over the medium to longer term to the fund.

Former Attorney General Shibly Aziz told the Sunday Times that when the department was consulted in late 1995 or early 1996 by the Bank for an opinion on investments, his opinion was that investments in the stock market was against the EPF Act No. 15 of 1958.

It only permitted investments in government securities, he said adding that the EPF money could not be used for risky and volatile investments.
The responsibility of the EPF management was to protect the money of public and private sector employees properly managing the fund as its custodian without investing it in risky businesses like gambling, he said.

However, when the late K.C. Kamalasabayson, Attorney General, was consulted in 2002, his interpretation was that the EPF could invest only in listed blue chip companies. According to his opinion, it cannot invest in smaller companies.

When asked about these legal opinions, Ms. Gunatilake said the EPF was not legally prohibited or restricted in investing in banking sector stocks.
She said the main aim of the fund was to invest the money of employees in a prudent manner providing a reasonable return to members while safeguarding and enhancing the fund.

In 2002, the EPF took a policy decision to refrain from investing in banking sector shares in the stock market in accordance with the internal investment policy statement and standards of professional conduct of 2002, she said.However the policy changed in 2005 allowing the Central Bank to invest in the National Development Bank and thereafter the EPF began investing in banking sector shares, she said.

“The EPF is confident that its sound investment decisions will be proved pragmatic, sensible and profitable over the longer time frame, and therefore wishes to advise its millions of stakeholders not to be misled by vituperative and negative propaganda,” she said.

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