Sri Lanka (Commonwealth Union)_ Sri Lanka is preparing to roll out regulations for cryptocurrencies and other virtual assets under a new legal framework, marking a significant change in the country’s approach to the fast-evolving digital asset space. This comes as part of a global trend of governments establishing regulatory frameworks to govern crypto markets, foster innovation and safeguard financial systems. Accordingly, the Cabinet of Ministers this week approved plans to draft legislation that will regulate virtual assets and Virtual Asset Service Providers (VASPs). The decision comes as more Sri Lankans use cryptocurrencies through overseas exchanges and peer-to-peer trading platforms that currently operate outside the country’s legal and regulatory framework.
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At present, people in Sri Lanka can buy, sell and transfer cryptocurrencies using foreign platforms or informal online networks. Since these service providers are not registered locally, they are not required to follow Sri Lankan reporting standards, compliance rules or regulatory oversight. Authorities say this has created significant gaps in supervision and increased the risk of financial crimes. Speaking after the weekly Cabinet meeting, Cabinet Spokesman and Minister Dr. Nalinda Jayatissa said virtual assets have become increasingly accessible to Sri Lankan users through international digital platforms. But the lack of local regulations has left authorities unable to track transactions and make sure the assets are used for investment purposes and not as a way to launder money or finance terrorism.
The government believes the lack of oversight could expose the financial system to money laundering, terrorist financing and other illegal activities. As a result, it has decided to establish a comprehensive legal framework along with a dedicated regulatory structure to supervise the sector. To develop the new system, a Sub-Committee on Virtual Asset Service Providers was appointed under the leadership of the Deputy Minister of Digital Economy. The committee includes representatives from several key state institutions and works under the policy guidance of the National Coordinating Committee on Anti-Money Laundering and Countering the Financing of Terrorism.
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Following an extensive review, the committee recommended that the Securities and Exchange Commission of Sri Lanka (SEC) become the main regulator for virtual assets and VASPs. The SEC will work closely with the Central Bank of Sri Lanka, the Financial Intelligence Unit and the Inland Revenue Department under the proposed framework for effective supervision, enforcement and tax compliance. The Cabinet approved the proposal submitted by President Anura Kumara Dissanayake in his capacity as the Minister of Digital Economy, paving the way for drafting of the necessary legislation. Sri Lanka’s decision aligns the country with international regulatory standards as digital assets become a larger part of the global financial system.
Furthermore, organisations such as the Financial Action Task Force (FATF) have urged countries to regulate virtual asset service providers in order to reduce the risks of money laundering and terrorist financing while improving transparency. The program is expected to enhance financial security and stimulate growth of Sri Lanka’s digital economy. Clear and transparent regulation is expected to build trust among legitimate crypto businesses and attract responsible investment and inspire innovation in financial technology. As the country moves forward in its economic recovery, setting internationally accepted standards for virtual assets is seen as an important step to boost investor confidence and bring Sri Lanka closer to the world’s standards for finance and digital business.
