Central Bank of Sri Lanka

History

To accommodate dynamic economic and financial system developments upon gaining independence in 1948, the post-independence Government of Ceylon (as Sri Lanka was then known) established the Central Bank of Ceylon to maintain an active monetary policy regime and a dynamic financial sector to support and promote economic growth.

Prior to the establishment of the Central Bank, the Currency Board System set up under the Paper Currency Ordinance No.32 of 1884 functioned as the country’s Monetary Authority, though very narrow in its capacity. This system was deemed inadequate for a developing country upon gaining political independence. 

Objectives of the Central Bank

     (a)  The stabilization of domestic monetary values (maintenance of price stability).

     (b)  The preservation of the par value or the stability of the exchange rate of the Sri Lankan Rupee (maintenance of exchange rate stability).

     (c)  The promotion and maintenance of a high level of production, employment and real income in Sri Lanka.

     (d)  The encouragement and promotion of the full development of the productive resources of Sri Lanka

Introduction

The Central Bank of Sri Lanka (CBSL) is the apex institution in the financial sector in Sri Lanka. It was established in 1950 under the Monetary Law Act No. 58 of 1949 (MLA) as a semi-autonomous body and is governed by a five-member Monetary Board.

The CBSL seeks to achieve and maintain two core objectives to maintain a healthy and stable economic and financial system while maximising resource utilisation effectively. These objectives are:

      1.    The maintaining of economic and price stability

      2.    The maintaining of financial system stability

The MLA has also granted the CBSL sole authority to issue currency notes and coins to the public. Therefore, the Bank is responsible for currency issuance and management.

Function of CBSL

Core Functions

The core functions of the CBSL are:

(a) Conduct of monetary policy.

(b) Conduct of exchange rate policy.

 (c) Management of the official international reserves.

 (d) Oversight of the financial system.

(e) Licensing, regulation and supervision of banks and selecting non – bank financial institutions.

 (f) Provision of settlement facilities and the regulation of the payment system.

 Agency Functions

In addition, the CBSL also performs the following agency functions on behalf of the Government of Sri Lanka:

(a) Management of the public debt.

 (b) Foreign exchange management.

 (c) Fund management and acting as the custodian of the Employees’ Provident Fund.

 (d) Facilitating financial inclusion.

 (e) Financial intelligence services to detect and prevent money laundering and terrorist        
financing.

Laws and Regulations

•  Monetary Law Act (MLA) No. 58 of 1949

Monetary Law Act No. 58 of 1949 establish the monetary system of Sri Lanka and the Central Bank to administer and regulate the system and to confer and impose upon the Monetary Board of the Central Bank powers, functions and responsibilities necessary for the purpose of such administration and regulation, and to provide for connected matters.

• Payment and Settlement Systems Act No 28 of 2005

Payment and Settlement Systems Act No 28 of 2005 provide for the regulation of payment, clearing and settlement systems; for the disposition of securities on the books of the Central Bank; for the regulation of providers of money services.

Roles & Responsibilities of the NON-Banking institution

• Licensed Finance companies.

The regulation and supervision of Licensed Finance companies is governed by the FBA No. 42 of 2011 which was enacted on 09.11.2011 repealing and replacing the Finance Companies Act No 78 of 1988 to strengthen the regulation and supervision of Licensed Finance companies and to curb unauthorized finance businesses.  

• Specialized Leasing companies

In terms of Finance Leasing Act, No 56 of 2000 (FLA), a certificate of registration issued by the Director of SNBFI is necessary to conduct finance leasing business having prescribed amount of capital.

There are four categories of institutions that are eligible to register as Registered Finance Leasing Establishments (RFLEs). They are Licensed Commercial Banks, Licensed Specialized Banks, Licensed Finance Companies and Public companies (Specialized Leasing Companies). The regulation and supervision function of (SLCs) licensed under the FLA is carried out by the SNBFI Department of the Central Bank.

• Specialized Leasing Companies

In terms of Finance Leasing Act, No 56 of 2000 (FLA), a certificate of registration issued by the Director of SNBFI is necessary to conduct finance leasing business having prescribed amount of capital.

There are four categories of institutions that are eligible to register as Registered Finance Leasing Establishments (RFLEs). They are Licensed Commercial Banks, Licensed Specialized Banks, Licensed Finance Companies and Public companies (Specialized Leasing Companies). The regulation and supervision function of Specialized Leasing Companies, licensed under the FLA is carried out by the SNBFI Department of the Central Bank.

SLCs are not permitted to accept money from the public as deposits. However, they may borrow money by issuing debt instruments such as promissory notes, commercial paper and debentures etc. with the prior approval of the Director of SNBFI