Ethics is core to CFA program of the global investment body, CFA Institute, which is why it has tough standards for its members. Completing the program requires passing three levels of rigorous exams and demonstrating four years of professional investment decision making experience: getting an MBA is much easier and cheaper, but only because CFA Institute is uncompromising in its values.

There is a reason for all this. Holders of the CFA charter Ravi Abeysuriya, chief executive at Candor Asset Management; Chanakya Dissanayake, Sri Lanka country head at Copal Amba; Murtaza Jafferjee, managing director at JB Securities; and Sanjay Kulatunga, chairman of Lynear Wealth Management discuss why standards are high and how finance professionals can shape the capital market and future of Sri Lanka.

What makes the CFA charter a unique finance qualification?
Abeysuriya: CFA charter holders typically specialize in portfolio management. Many people tend to think the CFA charter is just another finance or accounting qualification, but this is not the case. With the CFA charter, you master a body of knowledge over three years on investment management of diverse asset classes such as fixed income, equity, real estate, private equity and various other assets. The qualification’s exposure to an internationally accepted knowledge base grooms professionals to manage large portfolios like pension and provident funds, endowment funds, and portfolios of high net worth individuals.

Unlike many other finance qualifications, the CFA charter is unique because charter holders are bound by stringent codes of ethics and standards of professional conduct. They are required to annually pledge that they are not being investigated and have no issues with regulators in the countries they work. If a CFA charter holder is being investigated for ethical or professional misconduct, they have to declare it to CFA Institute. There is a mechanism in place where anyone can make a complaint online against CFA charter holders failing to uphold ethical and professional standards of the charter.

Complaints are independently investigated by a disciplinary review council. Stringent procedures are in place to find out if members have violated the standards. The repercussions could be private or public censure to revocation of the right to use of the CFA designation. This is unique for a professional qualification that requires constant adherence to rules and regulations and declaring conflicts of interest and other misconduct that can happen in capital markets. The CFA program curriculum focuses on the practical skills needed by employers and clients in today’s global investment profession. No other graduate level program offers the same breadth and depth of advanced investment analysis knowledge and globally relevant investment management skills. For CFA Institute, client interest comes first. Many global companies insist on CFA charter as a qualification for investment managers and even in Sri Lanka employers are beginning to make the same demand.

How important is the CFA charter for a developing country like Sri Lanka?
Jafferjee: One of the key missions of the CFA Institute is to represent the interests of investors.

Investor cohorts in this market can be broken into three segments; retail, private institutions and state owned institutions. Retail investors are a fragmented lot, although there are some very large high net worth individuals who are more like institutions. Private institutions represent mainly contractual savings schemes like life funds and a few private pension funds, unit trusts and fund management business – these are growing but they still don’t command a dominant share of the market.

The largest quantum of assets is still controlled by the state, namely through the EPF, ETF and SLIC – the state only plays a custodian role in these cases and the beneficiaries are private individuals. These institutions don’t have the necessary governance mechanisms that ensure they are always acting in the interest of their beneficiaries.

Thus, we believe there is a void in the system which we hope to fill by being a voice for investors by advocating for the implementation of global best practices by utilizing the resources of the CFA Institute Market Integrity and Advocacy initiative. As incomes grow and if savers believe they are getting a real interest rate, financial deepening will happen where growth of financial assets will outstrip growth in the economy – this is already starting to happen.

Thus, the need for more financial intermediation will arise and the main requisite is suitably qualified investment professionals – we hope the CFA charter will be one way to develop the required people. The government is by far the largest borrower in the economy, and going by current trends on fiscal slippages, they will continue to post deficits for many years to come, requiring more and more borrowing. Since we have graduated to a middle income country, we don’t have the option to borrow on concessional terms from multilateral and bilateral agencies, thus we will have to turn more towards financial markets – both domestic and international. Thus, the treasury and the public debt department will need savvy people who understand how markets work so they can be both strategic and tactical in raising debt with the aim of lowering its cost.

What is the role played by CFA Institute in Sri Lanka?
Kulatunga: CFA Institute is based out of the US and Canada where the first 250 charter members came out in 1963. Since then, it has evolved from equity analysis to many areas of finance from fixed income to derivatives. Today, there are more than 125,000 CFA charter holders globally. The number is growing fast in India and China with the largest pool of candidates coming from these countries and the rest of Asia. Sri Lanka has approximately 185 CFA charter holders. The programme has been around for 15 years and Sri Lanka has a large student body because they realize it is the qualification to have to succeed in capital markets.

The qualification is a benchmark and passport to financial markets anywhere in the world. Global financial institutions recognize the value of the CFA charter and the quality of practitioners. These increasingly recruit more CFA charter holders. Credit rating agencies, insurance companies, pension funds and even market regulators are recruiting CFA charter holders in to their ranks.

The central bank and the SEC here are seeing the emphasis on the CFA charter. This is a positive thing because we need to up the game on the knowledge pool. As the market develops, we will have more financial products like derivatives, options and futures coming in and this is the qualification that will give the market the bandwidth to develop itself. A vital component is the CFA Institute Code of Ethics. Regulators can always police markets, but if there is no emphasis on ethical behavior on the ground there is no point. Regulation will always be a cat-and-mouse game. The regulator cannot be expected to clean up the market alone. This is where CFA Institute makes a difference because we hold our members to a stringent code of conduct if they wish to retain their CFA charters. We organize and host the Capital Market Awards where we put research reports, unit trust management and investor relation units through a rigorous process to recognize excellence. We are setting high standards and creating awareness. One area is around investor relations, which our Capital Market Awards recognize. The aim is to improve investor engagement and encourage better disclosures. We see some results where some companies host quarterly conferences to engage investors.

What is CFA Institute doing in the area of human capital development?
Dissanayake: When I began my career as a finance professional in the late ‘90s, the market was small and opportunities were limited. Many of us who joined the industry at this stage wanted to build global careers, which drew us to CFA Institute. Those who became CFA charter holders got good career opportunities in global capital markets. The firm I work for, Copal Amba, is the largest recruiter of CFA charter holders and this helps us differentiate our talent. Sri Lanka may be a small country, but we have a higher proportion of finance and capital market professionals armed with a CFA charter, which is the global benchmark for ethics, professional competence and knowledge. One may qualify to become a charter holder from anywhere be it China, India or even Sri Lanka, and doing so demonstrates the professional skills necessary to succeed in any major global capital market.

We as charter holders have access to a massive global knowledge base. CFA Institute hosts globally recognized knowledge conferences that are discussed and disseminated. There is a massive research budget to finance major universities on both sides of the Atlantic to continue research on finance, and disseminated among charter holders in a very structured process.

We are committed to creating awareness on global best practices here. Our engagement with local universities has improved awareness of financial reporting and analysis. Many state universities are accredited to CFA Institute, and we help them build curricular as well. We conduct the CFA Institute Research Challenge for universities, where they analyze financial reports of a company. They are mentored by a CFA charter holder. Qualifying teams get to take part in the Asian edition to qualify for the global CFA Institute Research Challenge.

Investments are not understood by many Sri Lankans. They don’t understand the risks, so lose out on the returns. This is why we need better quality market research, so that this will generate informed investment decisions in the capital market. This is an area we are trying to improve in Sri Lanka.

CFA Institute has been around in Sri Lanka for 15 years. Are its values taking hold and shaping the capital market here?
Jafferjee: I see two challenges. The first is we lack a critical mass of charter holders in the country who can tilt the playing field towards living up to the standards and values that CFA charter holders are supposed to practice and promote. By the end of this year, we will get to 200 charter holders; my sense is that the critical mass would be around 400 members, and going by current trends, we will achieve this by 2020.

Second, all CFA charter holders are not going to live up to what we collectively stand for. Thus, it is vital that we police ourselves and use the institute’s professional conduct program to weed out the bad eggs. The strictest censure is revocation of a wrongdoer’s CFA charter, and since it will be made public through their website, it will be a permanent stain that will show up on a Google search.