Sri Lanka: CBSL to Introduce Fintech Regulatory Framework

The central bank set up a fintech sandbox in February but no companies have applied to participate so far, officials told Regulation Asia.

CBSL (Central Bank of Sri Lanka) plans to introduce new regulations aimed at enhancing oversight of fintech products, top officials told Regulation Asia.

The plan comes on the back of local reports that emerging fintech products are increasingly undermining compliance with AML/CFT rules.

“Even though a considerable number of fintech products are in the market and many more product proposals in the pipeline for approval, the number of regtech products which harness the technology to ensure regulatory compliance of institutions have been zero up to now,” CBSL’s FIU (financial intelligence unit) said.

“It is a challenge for the FIU-Sri Lanka to strike a balance between the FinTech boom and AML/CFT compliance without compromising mandates of each sector.”

Reached for comment, one official said regtech solutions can enable compliance with regulatory requirements more proficiently and effectively, highlighting KYC, AML and cheque fraud as some of the areas where such technology can help financial institutions.

“Such regtech products will greatly benefit FIU-Sri Lanka and other regulators as well as institutions by driving the compliance burden towards greater automation.”

The domestic financial industry is not very aware of the regtech products, says Rajkumar Kanagasingam, President of the FinTech Association of Sri Lanka. “RegTech is an advanced concept and foreign investors aren’t willing to invest here as the market is not as developed as, say, Singapore and Hong Kong.”

In February, CBSL set up a fintech sandbox as a framework to allow small-scale, live testing of financial innovations by private firms in a controlled environment under central bank supervision. Under the framework, fintech firms need to partner with commercial banks to apply for entrance in the sandbox to test their products.

According to Kanagasingam, Sri Lanka has about 20 fintech start-ups dealing mainly in digital payments and alternative finance.

However, CBSL officials say so far no companies have applied to participate in the sandbox due to the Covid-19 pandemic and its related impacts.