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SEC overhauls Regulations Governing Market Institutions, Market Intermediaries and introduces a Code for Collective Investment Schemes

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The Securities and Exchange Commission of Sri Lanka (SEC), the securities market regulator has prepared Rules pertaining to Market Institutions, Market Intermediaries and a Code for Collective Investment Schemes following the enactment of the new Securities and Exchange Commission Act No. 19 of 2021. These Rules which were made in terms of the powers vested in the Commission under Section 183 of the Act. The Rules in respect of Market Institutions and Market Intermediaries were published in the Gazette Extraordinary bearing Number 2271/09 and 2271/10 dated 15 March 2022 whilst the Rules in respect of Collective Investment Schemes which will be known as the “CIS Code” was published in the Gazette Extraordinary bearing Number 2278/2 and dated 07 May 2022. They come in to force from the date of the respective Gazette Notices.

The key components of the Rules for the three Market Institutions, namely an Exchange, a Central Depository and a Clearing House, include the licensing procedure, minimum financial requirements, reporting and infrastructure requirements, governance structures, compliance and internal controls etc. In addition, these Rules embody detailed criteria for fitness and propriety of key management persons of market Institutions and has introduced the important role of a compliance officer whose responsibility is to ensure that the Market Institution at all times complies with applicable laws, rules and regulations and submits a compliance report to the Commission periodically.

The new SEC Act has redefined “Market Intermediaries” and has included a range of new Market Intermediaries such as corporate finance advisors, derivatives brokers, derivatives dealers and market makers. The newly gazetted Rules pertain to eight Market Intermediaries. They are Investment Managers, Margin Providers, Credit Rating Agencies, Underwriters, Stock Brokers, Stock Dealers, Managing Companies and Corporate Finance Advisors. They cover the licensing procedure, minimum financial and infrastructure requirements, qualifications and experience required for persons dealing with clients, maintenance of books and records, ceasing of operations etc. Rules in respect of market makers are being prepared with the assistance of experts from the Asian Development Bank and Rules in respect of derivative brokers and dealers will be published when derivatives are to be introduced.

Similar to the provisions contained in the Rules for Market Institutions, the Rules for Market Intermediaries require them to have a compliance officer whose duties have been clearly spelt out. The key management persons are required to submit an affidavit at the time of their appointment and at the time of renewal of the license affirming compliance with the criteria stipulated for fitness and propriety.

The new SEC Act contains specific provisions for the setting up of Collective Investment Schemes (CIS) which go beyond the presently available Unit Trusts and paves the way for the introduction of Interval Funds, Exchange Traded Funds, Money Market Schemes, Umbrella Schemes, Real Estate Investment Trusts and Hedge Funds to name a few. Section 183 of the new SEC Act defines what Collective Investment Schemes are. The detailed definition makes it clear as to what type of scheme or arrangement will be considered a Collective Investment Scheme and also explains what type of pools of funds are not included within it.

The Collective Investment Scheme Code of 2022 (the “CIS Code”) which has now been brought into force repeals and replaces the Unit Trust Code which was introduced in 2011. The CIS Code will thus provide for the creation of numerous types of collective investment schemes involving different asset classes including equity securities and fixed income securities to Real Estate, Gold, Derivatives etc. Unit Trusts will also come within this fold. They will cater to investors with diverse risk appetites. It will be possible to set up Hedge Funds although they are possible of being marketed only to Accredited Investors. The issue of high – risk instruments to the market is thereby facilitated whilst at the same time ensuring the protection of non-sophisticated investors.

The CIS Code spells out the manner of appointment and replacement of a Managing Company, its duties and functions, the manner of appointment and replacement of a Trustee and a Custodian of a scheme, their duties and functions and connected matters. It spells out in detail the types of schemes that can be set up, general conditions to be followed in their operation and marketing, general conditions for initial offers and sale and purchase of units, creation, issue, repurchase and redemption of units, sale and redemption of units in open ended and interval schemes, account keeping and reporting requirements, suspension of dealing and termination of schemes, termination or winding up of a scheme etc. The CIS Code enables the outsourcing of certain administrative functions of a Managing Company, enabling them to focus more on their core activity of investment management. It also has provisions relating to the role of an Auditor of a scheme and the co-operation that is required to be extended to an Auditor. The Annexures sets out minimum contents of a Trust Deed and the Key Investor Information Document as well as guidance on asset valuation and pricing, guidance on conflict of interest and guidance on complaints handling.

The Chairman of the SEC Viraj Dayaratne PC commenting on the publication of the Rules said “With the coming into force of the new Act, it was necessary for us to ensure that steps are taken to give effect to the provisions contained therein and have the mechanisms in place for its proper administration. We are happy that we have been able to compile them within a relatively short period of time”. He went on to observe that “We are optimistic that these Rules will foster good business conduct and a good corporate culture among all regulated entities and provide for the fair and efficient treatment of their clients and also promote confidence in the capital market. As the Market Intermediaries are directly in contact with investors, supervision of their functions by the SEC is an important function towards preventing possible misconduct and in promoting ethical behavior. This will in turn lead to the creation of a fair and orderly market thus instilling the much needed investor confidence”.

. Chinthaka Mendis, Director General of the SEC stated, “The Rules, which were finalized after several rounds of stakeholder consultations, spell out a clear framework for the operation and governance of these entities which play a pivotal role in the Capital Market. The Rules require these entities which are regulated by the SEC, to conduct themselves in a manner that will ensure the protection of the interests of their clients and preserve the integrity of the Securities Market. Compliance with these Rules is seen as an essential foundation for the maintenance of a fair and orderly market as well as to ensure investor protection”.

The Rules and the CIS Code can be accessed through the SEC Website www.sec.gov.lk.

The SEC has also finalized Guidelines to provide for the duties and obligations of ‘Supplementary Service Providers’ in terms of Section 169(3) of the Act. In terms of the definition found in Section 183, those who come within this definition are actuaries, auditors, custodians, trustees and valuers. These guidelines will be published on the Website of the SEC.



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Dialog impacted by further forex losses in Q2, accumulated NPAT in 1H negative Rs28.3Bn

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Dialog Axiata PLC announced, Tuesday 09th August 2022, its consolidated financial results for the six months ended 30th June 2022. Financial results included those of Dialog Axiata PLC (the “Company”) and of the Dialog Axiata Group (the “Group”).

Sri Lanka continued to be battered by the socio-economic crisis in Q2 2022 which led to adverse movements in macro variables such as Sri Lankan Rupee (“LKR”) depreciating 23% against the United States Dollar (“USD”), Inflation rising to 54.6% (from 18.7% recorded by end Q1 2022), policy rates increasing by 8 percentage points and 12-month T-Bill rate increasing to 21% (from 12% recorded by end Q1 2022).

Despite the challenging environment witnessed in Q2 2022, the Group sustained its consistent performance to record strong Revenue growth across all business segments, namely, Mobile, Fixed Line, Digital Pay Television, International and Tele-infrastructure, relative to prior periods, namely, Year-to-Date (“YTD”) and Quarter-on-Quarter (“QoQ”). Accordingly, the Group recorded consolidated Revenue of Rs.81.6Bn for 1H 2022 and Rs43.3Bn for Q2 2022. However, driven by higher network spend and escalation in the cost base, Group Earnings Before Interest, Tax, Depreciation and Amortisation (“EBITDA”) declined to Rs27.5Bn for 1H 2022 down by a moderate 1% YTD. On a QoQ basis EBITDA declined 14% to record Rs12.7Bn for Q2 2022.

The Group Net Profit After Tax (“NPAT”) was impacted by the forex losses amid continued depreciation of the Sri Lankan Rupee (“LKR”) against the United States Dollar (“USD”). The resulting forex losses reached Rs.14.2Bn for Q2 2022 and Rs.34.3Bn for 1H 2022. The forex losses were predominantly contributed by market-to-market translational losses from USD denominated borrowings.

Group NPAT recorded a loss of Rs28.3Bn for 1H 2022 and a loss of Rs12.5Bn for Q2 2022 amid forex losses. Normalised for the said forex losses, NPAT continued to decline albeit recording profits of Rs6.0Bn for 1H 2022 and Rs1.6Bn for Q2 2022.

Dialog Group continued to be a significant contributor to state revenues, remitting a total of Rs16.9Bn to the Government of Sri Lanka (GoSL) during the first six months of 2022. Total remittances included Direct Taxes and Levies amounting to Rs9.2Bn and Rs7.7Bn in Consumption Taxes collected on behalf of the GoSL. The total taxes paid increased 46% YTD and 56% QoQ. The Direct Taxes included Rs3.8Bn paid during the quarter in lieu of one-off Surcharge Tax of 25% applicable on PAT of FY2020.

The Group continued to support critical investments in 1H 2022 to provide seamless and consistent connectivity whilst meeting the surge in data demand. Accordingly, the Capital expenditure reached Rs22.4Bn for 1H 2022. Capital expenditure was directed towards investments in High-Speed Broadband infrastructure to further expand Dialog’s leadership in Sri Lanka’s Broadband sector. In line with the above Capex, the Group Operating Free Cash Flow (“OFCF”) declined to Rs2.8Bn for 1H 2022.

During the quarter the Dialog Group entered into loan agreement of up to USD150Mn with the International Finance Corporation (“IFC”) that is expected to help expand and improve the network capacity through the upgrading of existing sites and the deployment of new 4G sites. IFC will also ensure that Dialog adopts an enhanced environmental and social management system (ESMS) according to IFC Performance Standards for their mobile network deployment, in line with Dialog’s endeavors of pursuing green connectivity, supporting global climate action goals and achieving net-zero CO2 emission by 2050.

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Emirates invests over US$ 2 billion to take its on-board customer experience to new heights

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Priding itself on a brand promise of ‘Fly Better’, Emirates is investing over US$ 2 billion to enhance its inflight customer experience, including a massive programme to retrofit over 120 aircraft with the latest interiors, plus an array of other service improvements across all cabins starting in 2022.

Sir Tim Clark, President Emirates Airline said: “While others respond to industry pressures with cost cuts, Emirates is flying against the grain and investing to deliver ever better experiences to our customers. Through the pandemic we’ve continued to launch new services and initiatives to ensure our customers travel with the assurance and ease, including digital initiatives to improve customer experiences on the ground. Now we’re rolling out a series of intensive programmes to take Emirates’ signature inflight experiences to the next level.”

Some of Emirates’ latest initiatives include: elevated meal choices, a brand new vegan menu, a ‘cinema in the sky’ experience, cabin interior upgrades, sustainable choices and a generous approach to the little touches that make travel memorable.

Starting from August, Emirates’ passengers can look forward to:

New Inspirations, New Menus:  An award-winning team of chefs, a world-class catering team and a wide variety of suppliers have been assembled to design and deliver the best fine dining experience in the sky. New menus will be served on select Emirates routes in First Class, featuring dishes such as pan-fried salmon trout with moqueca sauce and creole rice, roasted duck breast with orange thyme jus, steamed broccolini and fondant potatoes. New menus will also be introduced to Business and Economy on the 1st of September.

Purposefully Vegan Choices: Emirates’ new vegan menu is carefully curated to cater to the growing numbers of customers pursuing this thoughtful lifestyle. Vegans, or anyone interested in a delicious and healthy plant-based meal, will enjoy handcrafted gourmet dishes such as pan-roasted king oyster mushrooms, flavoursome jackfruit biryani and sliced kohlrabi garnished with burnt orange. Desserts are a decadent affair with choices of chocolate truffle cake with hazelnut, pistachio and gold leaf, or green grape tart adorned with candied rose petals, vanilla custard, and berry compote glistening with yuzu pearls. Vegan dishes are available to pre-order in all cabin classes.

The Champagne and Caviar Experience: Emirates’ First Class experience, always a benchmark for service excellence, has been upped a notch in 2022. Customers can now savour unlimited portions of Persian caviar as part of the ‘dine on demand’ service, with an exquisite pairing of the world-renowned Dom Perignon vintage champagne. Emirates is the only airline with an exclusive agreement to offer the luxury brand on-board.

Cinema in the Sky: First Class customers can create a memorable movie moment on-board by ordering cinema snacks as they enjoy the 5,000 channels on Emirates’ ice inflight entertainment system. The cinema snack menu includes moreish classics such as lobster rolls, juicy sliders, edamame, and salted popcorn, and can be ordered on demand. All passengers can also curate their own ice experience before their flight, simply by browsing and pre-selecting movies or TV shows on the Emirates app, which can then be synced to ice the moment they board, maximising the seamless travel experience.

Farm to Fork – Sustainable Supply Chain: Emirates’ customers departing on flights from Dubai can begin crunching on fresh greens harvested from Bustanica, the world’s largest vertical farm and newly-opened US$40 million joint venture investment through Emirates Flight Catering. Emirates is continuing to invest in sustainable operations and supply chains, seeking local food suppliers and farms wherever possible to serve the freshest produce on board.

Specialised Hospitality Training for Cabin Crew: Emirates has partnered with Ecole hôtelière de Lausanne, one of the world’s top hospitality management schools, to craft the Emirates Hospitality strategy and encourage inspiring customer experiences. Emirates Cabin Crew have already begun engaging in intensive training programmes focused on delivering the four service pillars: Excellence, Attentiveness, Innovation and Passion.

Upgraded Cabin Interiors in all Classes: The most significant investment is an extensive and record-breaking refurbishment of the aircraft fleet interiors, where cabins will be retrofitted with new or reupholstered seats, new panelling, flooring and other cabin features. Benefitting all Emirates passengers, every cabin class will be refreshed and new Premium Economy cabins installed. After the retrofit, Emirates will have a total of 120 aircraft offering Premium Economy seats – the only airline in the region to offer this cabin class, and enhanced interiors and features across all other cabins. With its first aircraft scheduled to roll into the Emirates Engineering Centre for retrofitting in November, planning work and trials have begun in earnest.

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Janashakthi Life strengthens board with two new appointments

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Janashakthi Insurance PLC, one of the key players in Sri Lanka’s insurance industry, announced the appointments of Sivakrishnarajah Renganathan and Dr. Nishan de Mel as Independent Non-Executive Directors of the organization with effect from 27th July 2022.

“We are pleased to welcome S. Renganathan and Dr. Nishan de Mel to the Board of Janashakthi Insurance PLC, as we continue to accelerate the execution of our strategic priorities to expand our presence in the Life Insurance segment,” said Prakash Schaffter, Executive Deputy Chairman of Janashakthi Insurance PLC.

“Renganathan joins us with a rich tenure of 41 years in the banking sector and extensive financial and managerial experience which will provide valuable insights as we continue to pursue our growth journey. Dr. de Mel is an economist with extensive knowledge and experience in strategic planning, that will enable our growth strategy to drive transformation through effective strategic planning. We are confident that they will provide valuable perspectives and will create a new dynamic within the Board as we continue to transform the insurance industry to better serve our customers and communities”, he concluded.

Sivakrishnarajah Renganathan is the former Managing Director/ Chief Executive Officer of Commercial Bank of Ceylon PLC, Commercial Development Co., PLC and Deputy Chairman of Commercial Bank of Maldives. He had held several key positions in the Bank. He has led Commercial Bank’s acquisition of the banking operations of Credit Agricole Indosuez in Bangladesh. In addition, he has served among others, as a Member of the General Council of the Institute of Bankers of Bangladesh, Founder / President of the Sri Lanka Bangladesh Chamber of Commerce and Industry, Executive Member of the Foreign Investors Chamber of Commerce and Industry in Bangladesh.

Renganathan, a Fellow of the Chartered Institute of Management Accountants, UK (FCMA), Fellow of the Chartered Global Management Accountant (CGMA), Fellow of the London Institute of Banking & Finance, UK (FLIBF) and a Fellow of the Institute of Bankers Sri Lanka (FIB), had received extensive Leadership, Management and Banking training, both locally and overseas.

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