Corporate Governance Rules revised to drive capital market forward

The Colombo Stock Exchange (CSE), along with the Securities and Exchange Commission of Sri Lanka (SEC), revised the Corporate Governance Rules for the Listed Entities after 16 years. These revised rules are applicable to companies listed on the Main Market Segment, i.e. the Main Board, Diri Savi Board and Catalyst Board, from 1st October 2023, subject to certain transitional provisions.

Corporate Governance Rules are quite significant for listed companies as they play a crucial role in ensuring transparency and accountability and enhancing trust and credibility of the company. The revised Corporate Governance Rules of the CSE were formulated in line with global best practices and will go a long way in enhancing investor confidence in the capital market. The new rules would attract more investors to the stock market and also create a more welcoming eco system for the companies to list on the stock exchange. These rules are aimed at promoting responsible, ethical, and transparent business practices, which would reduce the cost of capital for listed companies and contribute to their long-term sustainability.

When formulating the revised Rules, the SEC and CSE conducted several public consultations from 2021 to 2023 and considered the views received therefrom in formulating the rules.

Furthermore, CSE, in collaboration with SEC, also conducted a series of awareness sessions on the revised Corporate Governance Rules for the listed companies in the Banking Sector, Insurance Sector (with the Insurance Regulatory Commission of Sri Lanka), and other industry sectors.

SEC Chairman Faizal Salieh delivered the keynote address and Chief Regulatory Officer of CSE Renuke Wijayawardhane made the detailed presentation of the rules of these sessions which also included a ‘Q & A’. Notable speakers during the Question and Answer sessions included the SEC Chairman, Razik Zarook, Chairman, Insurance Regulatory Commission of Sri Lanka (IRCSL), Mrs. Yvette Fernando, Commission Member SEC and IRCSL, Sujeewa Mudalige, Commission Member SEC, Manil Jayasinghe, Commission Member SEC, Sanjaya Bandara, Commission Member SEC, A.K. Seneviratne, Commission Member, IRCSL, Ray Abeywardane, Director CSE, Chinthaka Mendis Director General SEC, Rajeeva Bandaranaike, Chief Executive Officer, CSE, Mrs. Damayanthi Fernando, Director General IRCSL, Renuke Wijayawardhane, Chief Regulatory Officer, CSE and Ms. Manuri Weerasinghe, Director Corporate Affairs, SEC who shared their expertise and engaged in a lively exchange of ideas. Senior management and staff from the SEC, CSE and IRCSL were also present at the sessions Senior officials of the CSE also presented the new Corporate Governance Rules at several seminars/awareness sessions held by other organizations, enabling the listed entities and the relevant stakeholders to gain much-needed knowledge on these Rules.

Some of the key changes introduced via the new Corporate Governance Rules include specifying a minimum number of directors and Independent Directors for listed entities, appointment of a ‘Senior Independent Director’ in certain specific instances, establishment and operationalization of a Nomination and Governance Committee, change in the composition and functions applicable to the Audit, Remuneration and Related Party Transaction Committees, introduction of Fit and Proper criteria for Board members and CEO, changes to determine the criteria for ‘independence’, additional disclosure requirements on governance-related matters etc.

Several listed companies have commenced compliance with the new Corporate Governance Rules, well ahead of the timelines specified in relation to some of the new requirements and have been actively engaged with the CSE and SEC on connected matters.

The revised Corporate Governance Rules are not applicable to the companies listed on the Empower Board.

Visit www.cse.lk to view the FAQs related to the Revised Corporate Governance Rules.