Regulation Roulette: Nobody to take the fall for scams
The Securities and Exchange Commission of Sri Lanka (SEC) has had several meetings with the Central Bank (CB) and its agency fighting money laundering and terrorist financing, Financial Intelligence Unit (FIU), concerning two major scams: ‘Blue Ocean Securities Limited’ and ‘Gladius South Asia’.
“We have had meetings and given all the relevant details on these scams,” SEC Chairman Prof. Hareendra Dissabandara told the Sunday Times Business on Wednesday. He said this on the sidelines of a media conference by the SEC, to disseminate several key initiatives launched by them and also inform the public about these scams.
SEC Deputy Director General / Officer in Charge Tushara Jayaratne told the Sunday Times Business that the SEC had two separate meetings with the CB governor as well as the FIU, on the Blue Ocean case. “Several months ago we informed the Central Bank about the bank that Gladius has accounts in,” he said.
When this newspaper contacted the FIU pertaining to an investigation about Gladius, an official said that the FIU can only probe if the company is registered under the CB and advised the reporter to talk to the Exchange Control Department of the banking regulator.
Upon contacting the Exchange Control Department, an official confirmed that Gladius has never invested overseas (in shares) and resorted to explain that Gladius just shows the investments on a platform to their clients. “A bank in Sri Lanka will never transfer money as per the instructions by the Central Bank. What happens is that this company only shows on their platforms that they purchased shares.” As such, there are no violations of exchange control, and the Central Bank does not have the purview in this regard, he said.
Ignoring Warnings, a National Pastime
When contacting a higher official at the same department, he said that despite constantly advising the public through media and other channels not to invest in these unauthorised and unregulated companies, people still pursue these organisations. “Why do they still do it? We only make the laws. We cannot take perpetrators to task. Therefore, the best thing to do if you have been duped by such a company is to make a complaint to the police.”
The SEC said that it has strengthened its collaboration with the Criminal Investigation Department (CID) to address a surge in sophisticated financial scams targeting capital market investors.
Prof. Dissabandara noted that more and more investors are not investing in the banking sector but are attracted to the Colombo Stock Exchange, and in turn, scam artists are also finding ways to dupe investors.
At the media conference, the SEC revealed that agents from Gladius, which promotes investments in foreign stock markets, even cold-called SEC officials soliciting investments, demonstrating their audacity. Gladius is reportedly a reincarnation of a previous scam, Copreus’, which defrauded investors before shutting down during the pandemic.
Blue Ocean Securities operates through WhatsApp groups and a fraudulent app called ‘BOMate’, which misleads users into thinking they can trade but the company siphons funds into unrelated accounts. The SEC acknowledged its limitations in addressing these scams independently, as it lacks the authority to arrest suspects or freeze accounts, and has referred all findings to the CID and FIU.
In addition to combating fraud, Prof. Dissabandara outlined a 12-point strategy aimed at enhancing the capital market’s role in national economic recovery, targeting an 8-9 per cent growth rate.
He added that there are over 200,000 registered companies but only 286 listed on the Colombo Stock Exchange, and the aim is to increase this number to 500 within three years and 1,000 within five years. Currently, there are about 2.2 million Central Depository System (CDS) accounts, but only around 60,000 active investors, representing less than one per cent of the population.
The capital market regulator is addressing the rise of unregulated financial influencers, or “finfluencers,” by planning to introduce a code of conduct and guidelines to ensure transparency regarding sponsorships and qualifications. Prof. Dissabandara emphasised that this code of conduct and guidelines will mirror best practises from New Zealand, Australia, Japan, Malaysia etc. He said the SEC also plans to conduct a public consultation on this.
He also highlighted the importance of market integrity, stating that sustainable market growth relies on confidence, credibility, and trust rather than unrealistic returns.
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