CBSL cautions public of entities raising funds by issuing various instruments

The Central Bank of Sri Lanka has cautioned the public to be cautioned of certain individuals and entities mobilizing funds from the public by issuing various instruments.

Issuing a statement yesterday (06), the CBSL said, certain categories of institutions raise funds by issuing such instruments, namely promissory notes, commercial papers and debentures. “Though these products may be attractive in terms of return, individuals should ensure the appropriateness of such funds for their purposes.”

The CBSL has observed that some entities mobilize funds from the public without giving adequate information regarding the true nature of such instruments and without following the accepted procedure for such activities. 

In this background, the CBSL has urged the public to be vigilant on the legal status of various financial products, the standard procedure for issuing such instruments and the risks involved in investing in such products.

The CBSL has further informed the public that the issuing procedure, terms and conditions relating to investing of money, withdrawal procedures and other features relating to investments in Promissory Notes, Commercial Papers and Debentures are different from depositing money in Banks and Finance Companies.

Accordingly, the investments in such instruments do not fall into the category of deposits in normal circumstances.  The deposits placed in licensed Banks and licensed Finance Companies are subject to the protection of the Deposit Insurance and Liquidity Support Scheme operated by the CBSL. Investments in Promissory Notes, Commercial Papers and Debentures are not eligible under the Deposits Insurance Scheme.  Therefore, in the event of any default by the issuer of such instruments, investors have no protection under the Deposit Insurance Scheme, the CBSL’s release continued.

The statement has also informed the public that the present regulation of the Deposit Insurance Scheme covers the depositors up to a maximum of Rs. 600,000.00 per depositor, in the event of a failure of a CBSL-regulated Bank or Finance Company.

In view of the above, the public is informed to exercise extreme care and be vigilant when investing their hard-earned savings in instruments offered by various institutions.

The CBSL has advises anybody, who wishes to invest in such instruments, to carefully read the offer documents, contents in the agreements, terms and conditions applicable for return, premature redemption and term to maturity etc.