Forensic Audit of CBSL focuses on gaps in appointing new primary dealers

COLOMBO (News 1st):- With regards to the Forensic Audit of the CBSL, News 1st previously reported on a loss of over Rs. 16 billion between 2008 and 2015 suffered by the Employees Provident Fund revealed by the forensic audit report on the Central Bank Bond Scam. The report also highlighted the fact that these market malpractices were conducted even before 2015. Today we focus the attention on the 5th volume of the Forensic Audit Report found that gaps were noted in the assessment of the requirement for appointment of new Primary Dealers. It added that the views of the Supervision Department against the appointment of Perpetual Treasuries Limited as a new Primary Dealer were not presented to the Monetary Board. The report says the appointment of Perpetual Treasuries Limited was recommended in the Board Paper during then-Governor Ajith Nivard Cabraal on the 9th of May in 2013. However, the assessment criteria had not included in the assessment to identify the creditability, experience of holding company/directors and capacity for Investment by the Primary Dealers. The risk-based approach defined for Supervision requires an assessment of risks of Primary Dealers such as Liquidity Risk, Market Risk, Legal / Reputational Risk Management and Strategic Risk. One of the key findings as mentioned in the report is that supervision functions risk-focused approach has not identified risks comprehensively such that the risks a Primary Dealer bring on to the Government Securities market. These risks include market manipulation, money laundering, corruption and insider trading that impacts investor confidence and financial system stability. According to the report, there were certain non-compliances or deviations which were noted consistently across the Primary Dealers, indicating the potential systemic deficiencies in terms of procedures towards regulation, policy, and operational guidelines. It added that there were no penalties levied or applied for repeated deviations and these violations were not highlighted to the Monetary Board for regulatory action. Certain key documents evidencing the assessments performed by the examiner and explanations sought and reviewed during the examination were also not documented. The report went on to note that operations are handled through a manual process and do not leverage the technological advancements that enable the effectiveness of the function, both at the operations and monitoring levels. A review of the process for reporting to the Monetary Board revealed that the reporting process is driven by the division and not the Monetary Board. Instances of examinations not conducted as per the approved annual plan, examinations not conducted at the defined frequency, significant delays in completion of examinations, delays in reporting of findings or non-submission of examination reports by the division to the Monetary Board were not identified as part of the reporting process.