Can ethics safeguard the interest of capital market investors in Sri Lanka?

Saturday, 21 March 2015 23:08 Written by

The proper application of ethics to the investment profession is a highly subjective topic that can raise numerous challenging questions for all stakeholders, including investment advisors, investors and the regulatory agencies. 

Ethics for an investment advisor would mean understanding a client’s individual situation and objectives and knowing the right thing to do and doing it. An ethical transaction can be defined to occur when a client truly knows exactly what they are doing and reasons for doing it, with full understanding of the costs and risks involved given the assumption that all pertinent laws and regulations have been obeyed.

Ethical concerns to the forefront

The recent headline-snatching failures of two of listed companies into biological assets and financing has brought ethical concerns to the forefront of public scrutiny. Further, the events following of the rapid surge and the subsequent decline in stock exchange during the period of 2009-2012, led many opponents to bluntly frame the Sri Lankan capital market as a victim of the rise of the malicious “Mafia”. 

Adding assertion to this discussion, the Prime Minister, in speech in Parliament during March 2015, elaborated a number of allegations of violations of the Colombo Stock Exchange market rules and Securities and Exchange Commission regulations during this period. His speech further highlighted the names of prominent capital market investors/businessman and also went on to state that only the minor cases were compounded, while 13 large cases were abandoned purportedly on a lack of evidence. 

Many reading the events of the above paragraph, would simply perceive the Colombo Stock Exchange as a “den of thieves.” A bastion of greed that provides little or no value to the productive capacity of the Sri Lankan economy. In reality, this is simply not true. 

Strength to our nation

While the Sri Lankan capital markets certainly suffers from the same human failings of other institutions, it provides an invaluable source of strength to our nation. This is why it is essential to impart ethics amongst all stakeholders in capital markets, beginning with investment advisors. This certainly prevent any unwarranted unsavoury repercussions of negative perceptions and retarding statements that hinder the growth of capital markets. 

Ethical practices must be the norm as well as a primary requisite, whether you are an investment advisor, key investor or regulator. Ethics amongst the investment advisors can be the main road block that prevents disorderly behaviour amongst the key stakeholders and enhances the element of “Trust”, a pivotal component in the development of capital markets.  

Importance of ethics

Capital markets consist of many individuals making conscious decisions about how to invest their capital. Ethics is important for our markets because investors need to have confidence that they are playing on a level playing field. Through the practice of market ethics by the investment advisors, investors can judge the quality of service they get from their adviser because they will be able to have virtually instantaneous information to make their investment decisions. 

These decisions must necessarily involve a large element of trust or otherwise investors would not make others (investment advisors) the guardians of their hopes and dreams. The hopes and dreams embodied in their hard earned life-savings. In order to maintain this trust, and continue to receive this vote of confidence from a large pool of investors, we must recognise the long-term advantage of building relationships through ethical practices that benefit all parties over an extended period of time.

When conceiving measures that will perceive investment advisors as ethical, debate still remains on the moral framework of compensation that is an integral part of an investment adviser. Since ethics by itself is subjective, the requirement must embody that the client’s interests ahead of the employer or advisor at all times and in all situations. 

A key drawback is that there is no central ethical resource that is available to the investment advisor in many circumstances. For example investment advisors in the Colombo Stock Exchange are commission-based brokers. They can consult their supervisors or compliance departments on certain matters, but they are likely to get business enhancing answers to many of their questions. The end result would be that a profitable transaction would be created for the broking firm with a sizeable commission, but may not address the true investment objective of the client.

The similar can be debated about the nature of and level of advice that is provided by an investment advisor. A good investment advisor will be held to a fiduciary standard that requires the client interest be first at all times. As explained in the CFA program an advisor or the advisory firm should have a comprehensive understanding of the client situation, meaning that the advisor should thoroughly discuss the needs and circumstances and carefully match financial products and services to the situation (Source: CFA Institute’s Statement of Investor Rights).

In addition, the advisor should embody a manageable client base, a solid business continuity plan, understanding, clear communication and clean disciplinary history.

Conclusion

Ethics can safeguard the interest of investors. However, ethics must be universally adopted by all stakeholders including investment advisors, investors and regulators. Ethics must be practiced mainly by investment advisors and that should transcend to the other stakeholders. Ethics in investment planning should be vividly practiced in both compensation arrangements and when providing investment advice. The result will be a level playing field for all investors that would culminate to a growth in capital markets.  


[The writer is the Managing Director at LTC Ltd., a financial services firm operating in Sri Lanka. He has a BEng (Hons) in Chemical Engineering degree from the University of Nottingham, United Kingdom and a MBA from the University of Colombo. He is also a Chartered Financial Analyst. He can be reached via email on This email address is being protected from spambots. You need JavaScript enabled to view it..]

Source: http://www.ft.lk/article/560243/Can-ethics-safeguard-the-interest-of-capital-market-investors-in-Sri-Lanka

 

 

 

Sri Lanka to change current FDI policy

Thursday, 12 March 2015 07:36 Written by

Sri Lanka is to change its Foreign Direct Investment (FDI) policy moving away from an over-dependence on tax holidays and other duty concessions on imports of raw material and machinery, Finance Ministry sources disclosed.

A greater focus will be on maximising the country’s competitive advantages in location, skills base, and ongoing preparation work of free trade agreements with both developed and emerging markets.

Sri Lanka plans to attract US$5 to 6 billion in FDI in the next three years, with the government focusing on policy consistency to attract foreign investors from the US, China and India.

However according to Finance Ministry econometric models FDI in Sri Lanka is expected to reach $549.48 million by the end of this year. Econometrics refers to the use of mathematical methods (especially statistics) in describing economic systems, according to the industry definition..

The government will introduce a new investment law and an incentive regime for foreign investors while improving the ease of doing business through several proposals in the 2018 budget, a senior official told the Business Times.

The new FDI policy spells out provisions that allow them to raise foreign exchange from venture capital funds and other investors through instruments such as convertible notes.

The government will do away with unrestricted powers vested in ministers to grant tax concessions and introduce a transparent system for granting tax concessions.

A concessional tax rate is to be introduced on interest payable to a non-resident on borrowings made in foreign currency from parties outside the country under a loan agreement or by way of issue of any long-term bond.

The corporate income tax rate will be revised while the concessions for various developments can be obtained via enhance depreciation allowances.

The concept of deemed dividend tax will be removed and the scope of dividend is to be widened to capture capitalisation of profits.

A 10 per cent Capital Gain Tax will be introduced in line with the concept of equity in taxation due to growing investments in capital assets.(BS)

 

Source: http://www.sundaytimes.lk/171015/business-times/sri-lanka-to-change-current-fdi-policy-263649.html

 

Footwear sector heats up on new Indian entry

Thursday, 12 March 2015 05:19 Written by

The entry of an Indian footwear company manufacturer into the domestic market under the Board of Investment (BOI) approval threatens the very survival of Sri Lanka’s footwear manufacturers accustomed to trade in the protected local market.

Veekesy Slippers Lanka Pvt Ltd, a subsidiary of Veekesy India, has set up a factory in Negombo with substantial financial resources, and advanced technology. This is a threat to the very survival of local companies accustomed to trade in protected market, Footwear and Leather Products Manufacturers’ Association has warned.

In a letter to the President, the association noted that this company is a major player in the Indian footwear industry with a capacity of more than 150,000 pairs per day.

With this strength, they have an additional advantage over Sri Lankan industry on procurement of raw material, machinery, moulds, etc. Due to their scale of operation they have a huge bargaining power over local industrialists, the association pointed out.

This advantage alone will help to kill the entire local footwear industry which has survived in Sri Lanka during the good and bad periods, a spokesman of the association told the Business Times.

This will be an opening for Indian companies to set up factories to manufacture products like confectioneries, biscuits readymade garments, cable, vegetable products and even enter retail trade in a big way, he warned.

At present the minimum investment requirement to qualify for Section 16 projects is US$ 250,000, under which this company got approval. This can be either 100 per cent foreign investment or a joint venture investment with a local collaboration. Foreigners have to remit a minimum of $1 million if they are to undertake trading activity

With this very minimum requirement the Indian company has received the opportunity to enter the local market without any restriction, he said.

When contacted, General Manager of the company Fahad Farook noted that they will start production of slippers at the factory initially and consider turning out shoes in the latter stages.

Veekesy Slippers Lanka has adhered to all BOI requirements and received necessary approvals for the Indian venture; he said adding that they have no intension of ousting the local companies. “We are willing to discuss any issues with the association at a one-to-one meeting as Veekesy is also in the same business,” he said.

 

Source: http://www.sundaytimes.lk/171015/business-times/footwear-sector-heats-up-on-new-indian-entry-263643.html

Sri Lanka, second only to the US in global digital health advances

Thursday, 12 March 2015 05:19 Written by

Sri Lanka has several unique achievements in the field of digital health, the second country only after the US to recognise health informatics as a medical speciality, it was noted at an international medical gathering in Colombo this week.

“We have more than one hundred MSC qualified informaticians working in the health services in Sri Lanka setting up digital health systems in the country. We are (also) taking steps to implement digital informatics speciality to cover 300 hospitals in the first phase by 2019 and later to cover the whole country,” said the Minister of Health, Nutrition and Indigenous Medicine Dr. Rajitha Senaratne, the Guest of Honour at the Digital Health Sri Lanka 2017 and the 2nd Commonwealth Digital Health Conference and Awards held at the Cinnamon Grand Hotel.

He said the public information systems are being developed rapidly and the Health Ministry hopes to set up of an electronic reproductive information platform on health matters along with maternal and child health data at the end of this year to cover the whole country. “I wish to congratulate the Family Bureau for this unique achievement. Information systems regarding diseases such as Tuberculosis, respiratory diseases, HIV and AIDS, and Malaria information systems are developed by our own health officials with international support .”

Referring to the WHO, he said the Sri Lankan module is being adopted in India. “We are also using IT technology to ensure that there is no shortage of essential drugs in the country. We are the only country in the world to use mobile technology to monitor malnutrition of children in the country and these are some of the unique achievements.”

Minister of Science, Technology and Research Susil Premajayantha said that it was the duty of Sri Lankans to introduce emerging technologies practised in developed countries to Sri Lanka such as Nano technology, Bio technology, genomics, robotics, etc. “We started our Nano technology laboratory about eight years in Sri Lanka where 25 young Phd scientists who studied in other countries are working with us doing research in various sectors in collaboration with the private sector. We want to start the second Nano laboratory this year along with robotics technology,” he said.

Minister of Foreign Affairs Thilak Marapana, the Chief Guest at the ceremony, said that Sri Lanka had made unique contributions towards developing digital health and was the second country in the world after the US. This has been made possible due to untiring efforts made by Minister Senaratne,Minister Premajayantha and Prof. Vajira Dissanayake, President of Health Informatics Society of Sri Lanka and President of the Commonwealth Medical Association.

Source:  

http://www.sundaytimes.lk/171015/business-times/sri-lanka-second-only-to-the-us-in-global-digital-health-advances-263632.html