Financial Crime World

Title: Sri Lanka’s Banking Compliance Landscape: Regulations and Challenges

Key Policies

  • Establishment of Banks: Banks in Sri Lanka are established under the Banking Act and require Monetary Board approval (applicable to both foreign and local banks).
  • Licensing and Structure: Commercial banks (LCBs) and specialized banks (LSBs) require licenses and can operate as a public company or a branch office of a foreign bank.
  • State Owned Banks: The government owns several banks to address regional development and priority sectors.
  • Banking Supervision: The Banking Supervision Department of the Central Bank of Sri Lanka (CBSL) handles banking supervision, adhering to Basel Committee on Banking Supervision standards, including Basel III.

Recent Developments

  • Removal from FATF Grey List: Sri Lanka succeeded in removing itself from the FATF Grey List due to efforts to combat money laundering.
  • Digital Facilities: Introduced digital facilities like online banking, payment gateways, and other cashless transactions.

Under the Banking Act:

  1. Entities that accept deposits, use funds for advances, investments, and authorized banking practices fall under banking laws and regulations.
  2. Fintech firms without deposits follow alternate guidelines.
  3. Minimum capital requirements must be met to function legally.

Additional Laws: The Banking Act, Monetary Law Act, and other laws govern various aspects of the banking industry.

Government Deposit Insurance

The Sri Lanka Deposit Insurance and Liquidity Support Scheme (SLDILSS) provides insurance coverage for depositors up to 1.1 million rupees per depositor.

Affiliate Transactions

Regulations for Related Parties:

  1. Transactions must follow specific guidelines to prevent conflicts of interest.
  2. More favorable treatment, such as lower interest, prudent capital infringement, or preferential treatment, is discouraged.

Proposed Changes

Future changes include:

  1. Strengthening consumer protection.
  2. Streamlining bank branch approvals.
  3. Improving governance.

Conclusion

This article provides an overview of major elements governing banking compliance procedures in Sri Lanka. Financial entities, particularly new entrants to the Sri Lankan market, must stay informed about these rules to ensure ongoing regulatory compliance.