SEC calls for a more active Unit Trust industry

The Securities and Exchange Commission of Sri Lanka (SEC) as part of its continuous engagement process with stakeholders in the capital market landscape, held a meeting with the CEOs of the Unit Trust industry last week. The main purpose of the meeting was to address the current state of the Unit Trust industry and urge it to become vibrant, dynamic and attract more investors to mutual funds and Collective Investment Schemes.

SEC Chairman, Faizal Salieh, Deputy Director General SEC, Tushara Jayaratne, Director Supervision SEC, Dilum Mahawatte, and other officials of the SEC participated at the meeting.

The SEC Chairman emphasized the importance of product innovation and sales promotion with attractive and relevant value propositions and urged the industry participants to invest their time and effort in that direction. The SEC, under the Collective Investments Code 2022 (CIS Code) has introduced the regulatory framework for the operation of Exchange Traded Funds (ETFs) and Umbrella Schemes. However, the SEC is yet to receive applications from Managing Companies for the establishment of such schemes. The Chairman urged the industry representatives to identify the interests of different investor categories, target segments and design new and relevant products that would enhance the overall attractiveness of the Unit Trust industry to the investor public. He suggested that the Unit Trust industry introduces capital protected investment schemes where the Managing Company would be able to provide a return to their clients whilst preserving the capital.

The meeting also discussed barriers to Real Estate Investment Trusts (REITs) and what is required to be addressed in this regard to generate value for the product. Stock Borrowing and Lending (SBL), which was introduced in November last year is restricted for Unit Trusts due to concerns related to risk management. The SEC officials stated that the SEC will consider permitting SBL under new Schemes with proper risk management controls in place.