Finance companies get 1 year to cut oversized equity holdings

Finance companies holding ordinary shares above the revised prudential limits have one year from 3 August 2026 to bring those investments down, under Direction 6 of the new Structural Changes Directions.

The Directions set two caps on FC investment in ordinary shares. Investment in the issued ordinary share capital of a company shall not at any time exceed 5 per cent of the FC's core capital. The aggregate amount invested in the issued ordinary share capital of companies shall not at any time exceed 25 per cent of core capital.

Both limits are measured against core capital as shown in the FC's capital adequacy return for the immediately preceding quarter, and both are framed as continuous tests rather than period-end ones. Core capital carries the meaning given in Section 74 of the Finance Business Act No. 42 of 2011.

Where an FC's investment in the ordinary shares of companies exceeds the limit due to the amendments in the prudential limits, the Directions require that investment to be reduced to a level below the limit within one year of the effective date.

Two exceptions apply. Notwithstanding the limits, an FC that complies with the regulatory capital requirements may form or acquire a subsidiary or an associate company with the approval of CBSL.

The limits also do not apply to shares an FC acquires in the course of the satisfaction of any debt due to it. Where such an acquisition results in the FC holding shares in excess of the percentage limits, the FC must dispose of the excess shares within the period determined by CBSL. No fixed disposal period is specified in the Directions.

The investment limits sit alongside the Directions' broader approval requirements, and the one-year runway is separate from the five-year transitional period granted for divesting non-compliant subsidiary and associate holdings.