REGULATORY FRAMEWORK OF CENTRAL BANK OF SRI LANKA

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Importance of Supervision of Banks and Their Regulatory Framework

In present, banking sector of Sri Lanka is regulated by the Monetary Law Act No.58 of 1949 The Act is established by 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 also the Banking Act No.30 of 1998 has established to provide for the introduction and operation of a procedure for the licensing of persons carrying on banking business, for the regulation and control of matters relating to the banks.
Regulation of banks is required to protect the public against mismanagement, bank failures and loss of confidence in the banking system. Bankers’ failures can have broader ramification hurting customers, other banks, the community and the market as a whole. To protect depositors and stock-holders CBSL has established several regulatory departments to overcome from this economic downfalls.

Bank Supervision Department (BSD)
The BSD is one of the two main departments, established in 1950 under section 28 of Monetary Law Act No.58 of 1949 at the inception of the Central Bank of Sri Lanka. It is used to carryout continuous supervision and periodical examination of all banking institutions in Sri Lanka.
The structure of the Bank Supervision Department is,
  • Banking policy division
  • Continuous supervision division
  • Examination division

Banking Policy Division (PD)
The PD plays an important role in drafting and issuing prudential regulations to banks in order to ensure stability of the banking sector in Sri Lanka. The prudential regulations are used based on,
§  Statutory provisions
§  Basel core principles of the Basel committee on Banking Supervision
§  Local and international regulatory developments
§  International best practices adopted by the other international regulators and markets.


Continuous Supervision Division (CSD)
The CSD monitors the financial conditions of banks and Non-bank associations on a continuous basis,
§  Through web based statutory returns submitted by banks on a weekly, monthly and quarterly basis
§  Regulatory Approvals
§  Submission of Off Site Surveillance Reports (OSSR) to Senior Management and the Monetary Board
Examination Division
In terms of the provisions of the Banking Act and the Monetary Law Act, all banks are subjected to statutory examinations. The examinations are conducted focusing mainly on preserving sustainability and efficiency of the banks.

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