Sri Lanka’s new Banking Act to facilitate banks in Colombo Intl. Financial Centre

Jan 06, 2020 (LBO) – Sri Lanka’s Central Bank has initiated drafting a new Banking Act and expects to complete its enactment in 2021.

The new Banking Act will contain provisions to extend regulations for banks, which are to be established in the Colombo International Financial Centre.

Key concepts of the proposed Act include provisions to introduce a single type of banking license for Licensed Commercial Banks (LCB) and Licensed Specialised Banks (LSB); adoption of proportionality in banking regulations commensurate with bank’s size, its nature of operations etc.; subsidiarisation of banks incorporated outside Sri Lanka and allowing to ring-fence subsidiaries from adverse external shocks; streamlining approval for establishment of branches and other banking outlets; strengthening consumer protection, deposit insurance, and governance; amalgamating both offshore banking unit (OBU) and domestic banking unit (DBU) operations into a single banking business; and improving resolution, enforcement and supervisory actions.

Going forward, the Central Banks expects to further reinforce the stabilisation of the sector with proposed changes to the Finance Business Act (FBA).

They propose to issue Directions on ownership limits for licensed finance companies (LFCs), giving a reasonable time horizon for the implementation, with flexibility on ownership limits for investors who invest in distressed companies expecting to restructure such companies.

Meanwhile, the Central Bank is revisiting the current foreign exchange regulations, orders and directions issued under the provisions of the Foreign Exchange Act to further facilitate transactions in the domestic foreign exchange market while improving clarity in FEA regulations.

The bank is also in the process of introducing an International Transactions Reporting System (ITRS), a comprehensive monitoring system of cross border transactions and foreign currency transactions through the banking system.

The proposed amendments to the provisions of the Foreign Exchange Act, which are at the finalisation stage, would be completed by early 2020.