AG addresses Bank Directors' symposium

Sarath Malalasekera

The growth of banking institutions have posed many challenges to regulators who are required to maintain confidence in the system to ensure protection for the investors and ensure protection to traditional deposit takers such as commercial banks, which largely depend on retail deposits to mobilize funding for their growing asset portfolios, said Attorney General President's Counsel Mohan Peiris at the Bank Directors' Symposium held at Central Bank recently.

The Central Bank Governor Ajith Nivard Cabraal presided over the conference.

The Attorney General said that it must be pointed out that while integrity, accountability and good corporate governance play a leading role in the regulatory framework administered by the Regulatory Bodies, specific offences that is primarily a result from the failure of the Directors of Banks to meet these responsibilities in the context of the aforementioned criteria.

It is certainly no exaggeration today that Directors are expected to meet an increasing range of obligations amidst commercial and legal expectations of their actions. The responsibilities of the Directors and the Senior Management of Banks extend well beyond legal duties alone. The legal obligations imposed on Directors and the Senior Management underpin good corporate governance practices. However, these need to be balanced with commercial realities so that they can make prudent business decisions.

In the past, the duties of Directors and officers in a company had to be ascertained by resorting to the common law, for the reason that these duties had not found statutory force. It is therefore a revolutionary step that in the Companies Act No. 7 of 2007 that these duties and responsibilities have been laid out in statutory form for the first time.

The Attorney General emphasized that as the watch dog of the banking sector, the Central Bank is bound to take cognizance of the obligations cast on Directors. As the regulator responsible for enforcing the laws in the banking sector, the Central Bank is also responsible for facilitating the performance of the financial system and entities within it, as well as promoting the confident and informed participation of investors and consumers in that system.

There are five fundamental responsibilities for Directors. They are -

Comply with the statutory duty of due care and diligence- that is, that you will discharge your duties with the degree of care and diligence that a reasonable person would exercise if they were a director of the Bank in the Bank's circumstances and occupied the office held by and had the same responsibilities within the Bank as the Director.

Exercise your powers and discharge your duties in good faith in the best interests of the Bank and for a proper purpose;

Not improperly use your position to gain advantage for yourselves or someone else or cause detriment to the Bank; Not improperly use information you obtain as a Director to gain an advantage for yourself of someone else or cause detriment to the bank; and Disclose to other directors any material personal interest in a transaction.

While it is pleasing to note that the vast majority of business in Sri Lanka is undertaken legitimately, with directors complying with these obligations, it is pleasing to also point out that the Regulator does not take enforcement action against those who make honest and reasonable efforts to comply with their legal duties as Directors. Thus, Directors are assured that the Regulator will not intervene in the aforesaid circumstance, despite some fears and perceptions that are lurking under every boardroom table.

The Attorney General emphasized the privilege that each Director has as a Sri Lankan Bank. Many of Directors are responsible as the lifeblood of the Sri Lankan economy and drivers of a high performing financial system with strong participation from investors and consumers and flow-on effects for the rest of the Sri Lankan community.

"I trust that you will each continue to undertake your duties as Directors in accordance with the law and have no doubt that if you adopt a commonsense approach, citing with honesty and the utmost integrity, you will meet the reasonable expectations of stakeholder beyond stakeholders alone and contribute to the sustainability of the Sri Lankan economy.