Fall of financial institutions:

‘Zero tolerance policy needed’

Ramani KANGARAARACHCHI

The collapse of financial institutions cannot be totally eliminated but a zero tolerance policy to prevent illegal operations and mismanagement will go a long way, Dr Dayanath Jayasuriya (PC) said.

Delivering a public lecture on the new Finance Business Act at the Centre for Banking Studies at Rajagiriya recently he said there is no ready fix solution to deal with excessive greed or irrational exuberance but moderation even in risk taking can yield rich dividends.

Elaborating on the objectives of the new Finance Business Act he said the six objectives include protecting the public by preventing the acceptance of deposits unless licensed to carry on financial business, ensuring the safety of deposits through insurance, provide for the minimization of systemic risk and recovery of any wrongful loss from past or present directors, promote ethical standards and good governance and public education.

He said the definition of finance business means the business of acceptance of deposits and the lending of money or the investment of money and to be eligible to be licensed as a finance company under this Act it must be a company registered under the Companies Act No 7 of 2007 but not a company limited by guarantee, a private company, an off shore company or an overseas company.

Dr Jayasuriya said a new framework for strictly regulating finance business operations is being achieved through the new FB Act.

It has also restricted the scope of unauthorized or illegal deposit taking operations, and raised level of prudential accounting and auditing requirements.

However, the markets must be permitted to evolve and product development must not be stifled. Markets tend to follow paths studded with pitfalls but damage control will be possible through good practices and timely and prudent regulatory intervention, he said.