New bill said to give powers to SEC to regulate unlisted public offers

It doesn’t matter if you are a listed company or not, you won’t be able to escape from the Securities and Exchange Commission’s (SEC) clout on you if you seek public funds for your business growth in the future.

During an Institute of Directors’ capital market conference held recently in Colombo, it transpired that the new Securities and Exchange Commission Bill includes provisions for all entities seeking public funds via public offers, to come under SEC purview.

However, the bill has given powers to the Commission on defining what a public offer is, which now has led to controversy.

“Right now, the current law restricts the regulation of the market to only the listed market. But with this law, the jurisdiction is now expanded into public offers”, said Suhadini Wickremasinghe, Senior Assistant Manager, Legal and Enforcement at the SEC. 

It was only recently Mirror Business exclusively reported that the SEC is bringing reforms to the listing rules mandating credit ratings for all public offers, even by unlisted firms. 

The discretion given to the Commission on determining what a public offer is not something seen in other jurisdictions, according to Dr. Prathiba Mahanamahewa, a strong critic of the bill and a former SEC Commissioner. 

 “The Commission may issue an order to the issuer not to allot, issue, offer or make an invitation to subscribe for a purchase or sell further securities relating to the public offers if the Commission is of the opinion”, the law academic read out a clause in the new Bill which demonstrates higher powers vested with the Commission in relating to public offers. 

However, SEC’s Wickremasinghe argued that under no law or statute she could find a clear definition of a public offer but the Commission must have that discretion and the flexibility to decide based on a broader criterion given the rapid developments taking place in the capital markets. 

Naomal Goonewardena, Partner at Nithya Partners, is also of the view that the new legislation should define what a public offer is.

“The public offer should have been defined in the Act. This is not a matter for the SEC to decide what is public and what is not.  

“When you leave all these for the interpretation by the SEC, in actual fact, we normally say the executive is involved in making laws because they are the ones who are deciding the scope of various things and to that extent in my view those discretions should have been reduced to the maximum level,” Goonewardena said. 
However, Wickramasinghe said the intention of the new provision which is to get all public offers to come under the SEC’s jurisdiction is not to over-regulate the market but to safeguard the average investor who has limited knowledge on capital market investments. 

“This is really more aimed at protecting the general investors at large. We don’t really want to step into over-regulate certain capabilities that the market has and spread our tentacles. That’s not the intention,” she explained.