Sri Lanka’s Securities and Exchange Commission (SEC) is to establish an ‘Investor Association’ to safeguard minority shareholder interests as well as function as a whistleblower against unlawful activities taking place in the Colombo Stock Exchange (CSE), a top SEC official said.

“We are currently in the process of preparing a board paper, to be presented to an ‘Investor Association’ comprising of small investors and minority shareholders to make sure their rights are protected due to market activities,” SEC Chairman Thilak Karunaratne said.

According to him, in most developed and a few developing markets, ‘Investor Associations’ have been formed to protect investor rights and are playing a proactive role in ensuring the integrity of those markets.

“For example if you take Malaysia, their equity markets have these investor associations playing a vital role safeguarding rights of small shareholders, and even sometimes taking legal actions against listed companies on unjust acts,” Karunaratne said.

He also pointed out that the proposed ‘Investor Association’ will function as an independent entity and will be funded by market stakeholders, including all listed companies. According to Karunaratne, many incidents have taken place in the recent past, where some listed companies have treated minority shareholders unjustly, using loopholes in the systems.

“What the market currently has is a few scattered organizations which are said to be protecting minority shareholder rights. And also some lone crusaders like K.C Vignarajah. The proposed ‘Investor Association’ will unite them into one force and defend their rights,” Karunarathne noted.

Despite objections by minority shareholders, Watawala Planataions PLC recently went ahead with a transaction, which minority shareholders accuse would allow the transfer of profitable assets of the company to a private company owned by majority shareholders.

“In Watawala’s case, we advised the Golden Shareholder, which is the Treasury to vote against this transaction. That’s all we could do as the regulator. But if there was an ‘Investor Association’, the minority investors could have exerted more pressure on the company, paving way to a different outcome” Karunaratne pointed out.

He also said, the independent nature of the proposed ‘Investor Association,’ will also allow it to voice concerns about issues like market manipulations, insider dealings and various other issues.