Draft amendments would bring virtual asset service providers within anti-money laundering regime ahead of FATF review Separate licensing framework under preparation, with Digital Economy Ministry leading policy work CoPF raises broader questions over cryptocurrency regulation, t…
Draft amendments would bring virtual asset service providers within anti-money laundering regime ahead of FATF review Separate licensing framework under preparation, with Digital Economy Ministry leading policy work CoPF raises broader questions over cryptocurrency regulation, taxation and oversight
Sri Lanka is moving to bring cryptocurrency-related businesses within its anti-money laundering regime for the first time, with the Central Bank confirming that legislation now before Parliament is intended as an initial step towards regulating virtual asset service providers (VASPs) before the country’s next international anti-money laundering assessment. Appearing before the Parliamentary Committee on Public Finance (CoPF), Financial Intelligence Unit (FIU) officials said amendments to the Financial Transactions Reporting Act (FTRA) would designate VASPs as reporting institutions, requiring them to undertake customer due diligence, identify beneficial ownership, maintain records and report suspicious transactions in the same manner as banks and other financial institutions. Officials stressed that the changes are driven by the need to comply with Recommendation 15 of the Financial Action Task Force (FATF), which was expanded in 2019 to cover virtual assets and VASPs. Sri Lanka currently lacks a prudential regulatory framework for the sector, a gap that contributed to a deterioration in the country’s technical compliance assessment. The Central Bank said a separate Government initiative is under way to establish a licensing and supervisory framework for VASPs. A subcommittee under the National Coordinating Committee on Anti-Money Laundering, chaired by the Digital Economy Deputy Minister, has prepared a concept paper and is seeking Cabinet approval for the broader framework. The committee includes representatives from 14 institutions, including the Inland Revenue Department.
Officials acknowledged that Sri Lanka currently has no licensing authority for crypto service providers, describing the proposed AML amendments as an interim measure designed to ensure entities operating in the sector are at least subject to anti-money laundering and counter-terrorist financing obligations while the wider regulatory architecture is developed. CoPF members questioned why regulation of virtual assets was being led through the Digital Economy Ministry and whether the Government should move beyond AML compliance towards a comprehensive policy on cryptocurrencies, including taxation and licensing. Committee members also raised concerns that crypto assets could facilitate tax evasion or illicit capital movements if left outside the formal financial system. Central Bank officials responded that broader policy questions, including whether and how virtual assets should be recognised, licensed or taxed, would ultimately require Government decisions beyond the scope of the current FATF-driven legislative amendments. The proposed amendments form part of a wider package of reforms to Sri Lanka’s anti-money laundering and counter-terrorist financing framework ahead of its third FATF mutual evaluation.