Corporate Governance of Banks: A critical analysis of Sri Lankan Law and practice

Abstract

Banks play one of the most significant and essential roles in any financial system; the health of the economy and the soundness of banking system go hand in hand. In Sri Lanka the Capital market reforms have taken place since 1990s adopting the Anglo American structure of Corporate Governance. Notwithstanding the reforms several banks faced scandals in recent years, most significant being the failure in Pramukha Savings and Development Bank and the imminent failure in Seylan Bank. Further measures were introduced following the scandals for effective regulation of banks. Currently this area of law is mainly governed by the Banking Act No 13 of 1988 including directives issued thereunder, Companies Act No. 7 of 2007, Codes of best practice and Regulations issued by the Securities and Exchange Commission. The key problem which is sought to be addressed in this research is the banking failures in Sri Lanka. More specifically the study examines whether such failures can directly be attributed to the inadequacies of the corporate governance laws. The objective of the research is to find out the issues prevalent in the law on corporate governance of banking and its implementation with regard to the fact whether such laws co-exist with the traditional socio-political setting in Sri Lanka and to propose necessary amendments and improvements to the same. This research will be carried out based on primary sources viz. relevant acts, codes and international instruments and secondary sources viz. text books, journals, electronic resources, documents of SEC, Central Bank, CSE, Financial Sector Reforms Committee (FSRC) and Annual reports of the banks. The Study concludes that Sri Lankan law on corporate governance of banks is satisfactory and mainly in line with international standards and the problem lies within implementation of such laws since Anglo American Structure of Corporate Governance fails to co-exist with the traditional sociopolitical setting in Sri Lanka.