Regulatory Practices of Money Broking Business in Selected Countries
Additional Director of the Policy Review and Monitoring Department of the Central Bank of Sri Lanka, LK
Mrs. Rupa Dheerasinghe is the Additional Director of the Policy Review and Monitoring Department of the Central Bank of Sri Lanka. She received a B.A. in Economics from the University of Peradeniya, a Post Graduate Diploma in Applied Statistics from the University of Colombo and an M.A. Degree in Economics from the Monash University, Australia. Her research interests are in International Trade and Monetary Policy.
Since 1980 Money Brokers (MBs) have been operating in Sri Lanka as key players in the inter bank call money market, government securities market and foreign exchange market. Money broking firms start operation after obtaining a ‘no objection' letter from the Central Bank of Sri Lanka (CBSL). Currently, neither the CBSL nor any other regulatory authority regulate or supervise these institutions. Therefore, this paper intends to examine regulatory practices of money broking companies in selected countries with the view of assessing the need for and the scope of regulating money broking firms in Sri Lanka. This study is based on the information collected from 21 Central Banks/Monitory Authorities in various countries of the world, where responses were obtained through an e-mail survey conducted in late 2004. The study clearly indicates that whenever, the firms are only involved in traditional money broking activities i.e., act as an agent between lender and borrower for a commission, authorities do not regulate or supervise their activities mainly because they do not hold public funds and therefore, no systemic risk is involved. However, majority of the countries in the sample issue license or other form of approval mainly for maintaining the professional standards and monitoring the developments in this sector. In many countries, self regulatory organizations hold the responsibility of supervising and regulating money broking activities. The paper concludes that the money broking industry in Sri Lanka too needs to develop a self regulatory framework to persuade firms to maintain self discipline within the industry preferably through the existing Money Brokers Association and that the Association should endeavour to enhance its reputation by introducing quality services and practice to its members and to the market and eventually achieve the recognition of the authorities. (JEL G28)