"In this regard, the EPF wishes to state that different departments in the Central Bank deal in exclusive fields of different operations with high confidentiality and professionalism," the Central Bank said in a statement.
"Within the Central Bank, the EPF Department functions independently from all other departments of the Central Bank, with stringent firewalls that have been established for this purpose.
"These are adhered to at all times and the integrity of the Central Bank or the EPF is not compromised in any way."
The EPF said it would be prejudicial to the fund's beneficiaries if it did not invest in banks which were among the fastest growing and most profitable sector in the country's stock exchange.The EPF had also attracted criticism for engaging in financial repression and keeping down interest rates in government securities to the benefit of the state and to the detriment of its members.
EPF said S & P's concerns appeared to be based on allegations made to "discrediting the EPF". Harsha de Silva, an opposition legislator has been among the foremost critics of the practice of the EPF investing in bank stocks, which he said amounted to 'insider dealing'
Critics have also raised other conflicts related to the funds.
They have pointed out that the fiduciary duty the EPF's managers had to its members to get the highest interest rates was in conflict with the role of the Central Bank's public debt department, which was expected to get the lowest rate for the state.
It is widely recognized that the interests of its members are subjugated to that of the state as in financial markets the EPF is routinely referred to as a 'captive source' of the state.
The overall financial repression, analysts have said, keeps interest rates down, sends wrong price signals and contributes to high inflation, currency depreciation and general economic collapses following excessive credit booms.
There have been calls earlier including from the International Monetary Fund, that the EPF should be independently managed.
The full EPF statement is reproduced below:
Response of Employees’ Provident Fund (EPF) regarding Statement made by Standard and Poors’ on 19th June 2012
Our attention is drawn to a statement made by Standard and Poors’ that was issued yesterday, in which they seem to have drawn attention to a possible conflict of interest as a result of the EPF investing in shares of banks.
In this regard, the EPF wishes to state that different departments in the Central Bank deal in exclusive fields of different operations with high confidentiality and professionalism. Within the Central Bank, the EPF Department functions independently from all other departments of the Central Bank, with stringent firewalls that have been established for this purpose.
These are adhered to at all times and the integrity of the Central Bank or the EPF is not compromised in any way.
Based on the above, the EPF wishes to affirm that there has been no conflict of interest and that the EPF believes that this statement by Standard and Poors’ seems to be based on certain recent allegations that have obviously been designed to achieve the objective of discrediting the EPF.
Further, the EPF wishes to state that the banking sector is one of the fastest growing and most profitable sectors in the CSE. In that context, being the country’s biggest Fund, it would be highly prejudicial to the local EPF members, if the EPF were to refrain from investing in such a sector.