( February 11, 2013, Colombo, Sri Lanka Guardian) The Central Bank of Sri Lanka (CBSL) is the chief regulator of the financial system of the country. There are no two views about it. When the regulator fails, the financial system fails. If one is to go by the revelation made by the UNP MP for the Kandy District, Lakshman Kiriella, that seems to be the case with regard to the failure of the Golden Key Financial Company, which saw hundreds of families who had invested hard-earned (and some ill-gotten) rupees, hoping for incredibly rich returns rendered impecunious, literally overnight.
Kiriella, in highlighting some critical facts about the Central Bank’s investigations into the Golden Key affairs, directed the spotlight on some crucial elements of fundamental banking practices and the supervisory functions conferred upon the Central Bank, which happens to be the Regulator-in-Chief of Sri Lanka’s financial systems, leaving the ordinary depositor with a few simple questions: What can be done to rectify the situation? Is it too late now? Only the Governor of the Central Bank and the government can answer these questions with any authority and authenticity.
It is immensely interesting that the revelation of the alleged ‘misdeeds’ or wilfully negligent corrupt practices by the Central Bank were brought to light by Justice Shiranee Tilakawardane, during her eventful session with the Parliamentary Select Committee (PSC) that probed into the allegations brought against the ousted Chief Justice in the recently-concluded impeachment motion.
But what is pertinent is delving deeper into the Central Bank’s functions in relation to its powers and authority enshrined in the Banking Act, Monetary Law Act and the Exchange Control Act. In terms of these Acts, the Central Bank is mandated to conduct investigations into the affairs of institutions, which are engaged in the business of finance without legal authority. These unauthorized institutions could be taking money from the public either as deposits or in a manner akin to deposits, tagged as investments, credit, borrowings or placements.
The Central Bank is empowered to take appropriate action against unauthorized institutions that contravene the provisions of the Finance Companies Act. Legal action can also be instituted against entities that fail to provide information for investigations to ascertain whether such companies are conducting finance businesses.
The allegation that Kiriella throws at the Central Bank in general and its present Governor, Ajith Nivard Cabraal, in particular, has much to do with the Central Bank’s failure to take appropriate action at the time, knowing full well where Golden Key was heading. Kiriella claimed, “The Central Bank had discontinued the activities of its Special Investigation Unit way back in 2006 after it examined the accounts of the Golden Key Company (GKC) and identified a major crisis in it – three years before the company went bankrupt.” It doesn’t take much to put two and two together and come to a conclusion as to who was at the helm of the Central Bank when it decided to discontinue investigation.
With the direct allegations thrown at the Central Bank and its Governor, who in the public eye, is extremely close to the ruling elite of the land, one would assume the Golden Key depositors have tangible evidence to file legal action against the Central Bank for dereliction of duty, with the charge that the vulnerability of the Golden Key Company and its apparent fraudulent practices were buried, for obvious reasons.
The charges are quite grave and a proper investigation should be conducted, by an esteemed panel of independent investigators with adequate transparency. This will help not only to find out what really went wrong, but also to find ways and means of avoiding such a recurrence of financial fraud by so-called white-collar business magnates and put in place some meaningful banking and financial regulations with teeth.
The government and the Central Bank must treat these revelations with utmost seriousness and sincerity. If heads have to roll, so be it. What is important is the integrity of the country’s banking and financial systems, not the name of an already tarnished government-cohort. If the public loses its confidence in the banking sector, the financial, social and political repercussions would be far too great for any government to tackle.
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