Dr. Nihal Jinasena, Member of the Securities and Exchange Commission of Sri Lanka.

Dr. Dayanath Jayasuriya, Director General of the Securities and Exchange Commission of Sri Lanka.

The Minister of Finance, the Hon. K.N. Choksy P.C (Presidents Counsel) MP.

Members of the Asia Pacific Regional Committee.

Distinguished guests, ladies and gentlemen.

Good evening.
It is my pleasure to be here today on the occasion of the APRC and Enforcement Directors' meetings. Firstly, I would like to express my appreciation and the appreciation of the APRC to our gracious host, the SEC of Sri Lanka for their magnificent efforts in hosting this event, and for the hospitality they have extended to all of us here in Colombo. The effort the organising committee of the SEC has put in to look after the many details necessary to make this event a success is evident in the excellent organisation of these meetings as well as the social events that have been planned for us. After the formal meetings of the APRC are concluded, I am sure we will be looking forward to exploring your beautiful country.

Ladies and gentlemen
The need for international regulatory cooperation is now greater than ever. Over the past two years, securities markets and regulators have had to deal with an almost continuous series of challenges, including those arising from terrorist activities, large-scale corporate scandals and the ensuing loss of investor confidence. Reports indicate that fundraising in the international capital markets fell sharply in 2002 as issuance was hit by a weak global economy, falling stock markets, rising corporate bankruptcies and political instability. More troubling is the fact that much of the decline occurred in the fourth quarter of 2002, raising doubts about a recovery in 2003. A recent study indicates that consumer confidence has fallen throughout much of Asia in recent months, dragged down by the same concerns about potential military conflicts and the uncertain economic climate.

Our meeting seems particularly well timed as we begin the new year of 2003 by meeting together and having the opportunity to share experiences, as well as to discuss issues and challenges for the securities markets of Asia Pacific. Key among these issues are regulatory cooperation on the international front and maintaining effective regulation on the domestic front.

As we look forward, ladies and gentlemen, the overall sentiment appears to be one of uncertainty and anxiety. Indeed, a major source of uncertainty for the US, and hence global economies, is the political and military developments that are unfolding. Rolled into this mix of challenges is the ever-increasing competition for listings and liquidity that now identifies our globalised financial markets.
A daunting outlook one may say, but as regulators, we embrace the challenges and recognize the need to anticipate, adapt and react. We therefore need to be better able to identify, assess and respond to risks facing our markets in the future and to cooperate together in managing and minimising any negative impact such risks may have on our markets.

How shall we improve regulatory cooperation? One evident way is through our commitment to the work and meetings of the APRC, a focal meeting point for Asia Pacific regulators. Our very presence here today signifies our agreement to the philosophy of regulatory cooperation. Another mechanism, which APRC members have employed, is to enter into bilateral memoranda of understanding (MOUs) among ourselves, a practice that should be encouraged.

APRC members also agreed in our previous meetings that enhancing regional co-operation, information sharing and assistance should be a significant issue for us to address and continuously improve on. The success of a cooperative MOU can only be seen in the actual improvement in the exchange of information and technical assistance between jurisdictions. Just as financial crime or the effects of a market participant’s failure can be speedily transmitted in this electronic age, regulatory cooperation should also be given promptly, especially in times of crisis. Our APRC meeting tomorrow will see the mechanism of information sharing in action as several of our APRC members will share their recent experiences under the Financial Sector Assessment Program (FSAP) for the benefit of others.

Related to the issue of regulatory cooperation is the entering into MOUs or the undertaking of strategic alliances among our exchanges. There have been numerous such announcements and I mention only two more recent ones as examples: the MOUs between the Stock Exchange of Thailand and the Chittagong Stock Exchange, and between the Tokyo Stock Exchange and the Shanghai Stock Exchange, both of which were announced in December last year. Just as cooperation among securities regulators can only benefit our markets, exchanges in the region also recognise the need to cooperate and develop mutually beneficial strategies in order to increase and sustain investor interest in these highly competitive times. All this point towards increased market alliances and possibly cross border connections. The APRC recognises the advent of cross border securities trading and the placement of remote access terminals. This development, of course, involves issues of regulation, investor protection, risk management and again, regulatory cooperation. The APRC is presently working on a mandate, which seeks to collate information on APRC members’ regulatory treatment of, and requirements for, the placing of remote terminals or overseas exchanges.

Ladies and Gentlemen
We cannot get away from the issue of investor confidence as it lies at the heart of successful and vibrant capital markets. The spate of major corporate scandals over the last year has hurt investor confidence and spurred the relevant jurisdictions to take immediate legislative and investigative measures to demonstrate that financial crime will not be tolerated. Investors need to be assured that their regulators are vigilant and that the proper regulatory frameworks such as corporate governance requirements are in place. This includes the observance of international best practices and standards such as IOSCO’s Objectives and Principles of Securities Regulation. While approaches towards investor protection differ across jurisdictions, it is widely accepted that disclosure and transparency are the primary regulatory tools for promoting investor protection.

It should also be pointed out that an appropriate and effective supervisory regime could contribute to the attractiveness of a market as an investment destination. An effective supervisory and enforcement regime must be present in any capital market regulatory framework if investors are to be assured that companies and intermediaries are properly regulated, and investor interest adequately protected. This can be important for Asia Pacific markets in 2003 as the Institute of International Finance projects that net portfolio flows to emerging Asia/Pacific markets will increase to US$10.1 billion this year, compared to US$8.3 billion in 2002.

Malaysia, for example, released its Code of Corporate Governance based on international best practices in 2000, instituted quarterly reporting in 1999 and established an independent accounting standard-setting board in 1997. Vigilant supervision is also undertaken by the Malaysian SC to ensure the accuracy of financial statements of public listed companies, and that offences such as insider trading, market manipulation and corporate governance transgressions are detected early and dealt with swiftly.

In relation to the area of investor confidence and protection, the APRC is currently working on a mandate relating to investor protection measures available in the region. The report should provide very insightful information on investor protection measures available across APRC member jurisdictions and can also serve as a valuable comparative study for individual members who may then wish to pursue further studies into particularly unique or effective mechanisms.
The Enforcement Directors who will also meet tomorrow will similarly be discussing matters related to investor protection such as the latest developments on cold calling actions, cross border regulation as well as actual case studies on the prosecution of securities transactions offenders.

Ladies and Gentlemen
We are living in uncertain yet exciting times. There can be no denying that an event in one jurisdiction inevitably causes ripples beyond its borders, and impacts upon other jurisdictions through the myriad channels within the financial market framework.

I would like to conclude by reiterating that collectively we need to improve our capability to handle this uncertainty and its inherent risks by working together for the protection of investors, to ensure that markets are fair, efficient and transparent, and to achieve the reduction of systemic risk; and individually to effectively police our domestic market to maintain and enhance investor confidence and investment flows. Let us be cognisant of the need to cooperate in order to manage issues that know no borders, and to effectively supervise our individual markets in order to maintain their integrity and credibility. We will be guided by these aims in our work, and we will endeavour to achieve breakthroughs and mutual benefits through APRC, and from here contribute to the wider work of IOSCO and securities markets generally.

Let me wish the APRC and Enforcement Directors Meetings 2003 in Colombo fruitful and successful discussions and outcomes.

Thank you.