Regulatory Framework for cryptocurrencies on the horizon
A subcommittee set up under the National Coordinating Committee, on Anti-Money Laundering and Countering Terrorist Financing (AML/CFT), is preparing a regulatory process to govern Virtual Assets and Service providers (VASP) such as cryptocurrencies.
The governing board of the Central Bank (CB) has agreed to set up a regulatory framework for VASPs, Dr. Subhani Keerthiratne, Director-Financial Intelligence Unit (FIU) of the CB, said.
The FIU is conducting surveys to gather data on this exercise, she said, noting that it is a three-phased approach to establish the AML / CFT framework applicable to VASPs. “In line with this approach, the FIU initiated action to develop an AML/ CFT supervisory framework and informed the President on the proposed phased implementation strategy,” she said.
Phase 1 was on identifying the basic information on operators of these currencies, which was done last October, through information gathered from newspaper advertisements by the FIU, she added. Phase 2 will include a targeted questionnaire on existing VASP activities in the country by these operators. The information collected is expected to inform the domestic policy and the country’s readiness for the upcoming AML/CFT evaluation. Finally, Phase 3 will be to establish a prudential regulatory framework for VASPs, which the sub-committee chaired by the Deputy Minister of Digital Economy Eranga Weeraratne, held a meeting on January 20. This committee includes about 33 members from nearly 15 institutions, including the Deputy Secretary-Treasury, the Registrar of Companies, and a representation from the CB departments, including the FIU. This committee will likely prepare a white paper on the regulatory framework and present it to the Cabinet.
Meanwhile, the CB is awaiting legislation amendments to the Financial Transactions Reporting Act, which will include virtual assets within the definition of financial institutions.
The use of virtual currencies for domestic payments or foreign exchange transactions via electronic fund transfer cards remains prohibited under existing foreign exchange regulations.
The push for a regulatory framework is primarily driven by the need to meet international obligations set by the Financial Action Task Force (FATF) and to mitigate AML/CFT risks. The FATF assesses the country’s adherence to their recommendations, which is called the mutual evaluation, and Sri Lanka is facing its third by the Asia Pacific Group on Money Laundering, which is the Asian arm of this agency.
The first submission on ‘Risk and Context’ will be on February 20 with Sri Lankan authorities meeting virtually the assessors of the FATF.
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