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Licensed banks to operate under stringent operational framework

Sri Lanka’s licensed banks are to be operated under more stringent legal and regulatory framework with the implementation of the new Banking Act, Central Bank Governor Dr.Indrajit Coomaraswamy told a media conference recently.     

The Central Bank (CB) is now reviewing the current Banking Act and several amendments will be made to strengthen the Act and one of those amendments is to empower the director of bank supervision of the CB to impose fines on banks for irregularities and malpractices, he disclosed.  

“At present, the Central Bank as the regulator has no way to impose fine on errant banks. It can only restrict their business in certain ways. We can restrict the role of board members etc. But we can’t impose fines so that is what would be introduced,” he said.

The key areas to be included into the proposed new Banking Act are an overall mandate for supervision and regulation, and a differentiated regulatory framework to facilitate proportionality, strengthening corporate governance, and consolidated supervision

A resolution framework, the capacity to impose monetary penalties/fines, ring-fencing of banks to mitigate contagion risk, strengthening provisions for mergers, acquisitions and consolidation of large foreign banks and holding company structure for banks will also be included in the new act.

Bank examination methodology will continue to be enhanced focusing on the efficiency, effectiveness and sustainability of individual banks and the banking sector.

A new supervisory rating model (The Bank Sustainability Rating Indicator-BSRI) is being developed by the Central Bank with a view to facilitating a risk based supervision framework to enable early intervention and prompt corrective action.

A regulatory framework on consolidated supervision will be formulated and provisions in this regard will also be brought into the Banking Act, official sources said.

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