Stablecoin issuer / redeemer in Sri Lanka

Not Classified as E-money/Payment Tokens: The CBSL has explicitly stated that virtual currencies (VCs), which include stablecoins, are not considered "e-money" under the Payment and Settlement Systems Act, No. 28 of 2005. Therefore, entities involved in stablecoin activities are not authorized or licensed by the CBSL to operate as payment service providers.

Not Classified as Securities (Explicitly): While the Securities and Exchange Commission of Sri Lanka (SEC) is the regulator for securities, there has been no explicit classification of stablecoins as securities by the SEC. However, depending on their specific structure and how they are offered, certain stablecoin arrangements could potentially fall under the definition of a "security" if they represent an investment contract or other instrument defined in the Securities and Exchange Commission of Sri Lanka Act, No. 19 of 2021. This is a theoretical possibility rather than an explicit ruling.

De Facto Classification: Unregulated/High-Risk Assets: In practice, stablecoins are viewed by Sri Lankan regulators as unregulated digital assets that pose high risks to users and the financial system.

Reserve Requirements: No requirements are imposed on stablecoin issuers for holding reserves.

Issuer Licensing: There is no licensing regime for stablecoin issuers in Sri Lanka. Any entity issuing stablecoins would be operating outside the formal regulatory perimeter.

Redemption Rights: There are no legally mandated redemption rights for stablecoin holders enforceable in Sri Lanka, as the assets are not recognized or regulated.

Central Bank of Sri Lanka (CBSL) Public Notice on Virtual Currencies (February 2022):

Content: Explicitly states VCs (including stablecoins) are not legal tender in Sri Lanka, are unregulated, and warns against associated risks (volatility, financial losses, illicit activities, cyberattacks). Advises the public not to use or invest in VCs.

Not Legal Tender: Virtual currencies (VCs) are not recognized as legal tender in Sri Lanka.

Illegal for Payments: The CBSL has prohibited regulated financial institutions from facilitating transactions involving VCs. This means VCs cannot be used for payments within Sri Lanka and engaging in such transactions carries significant risks.

No Licensing: No entity or company is authorized or licensed to operate, offer, or sell VCs, or provide services related to VCs (e.g., exchanges, brokers, miners) in Sri Lanka.

The Financial Transactions Reporting Act, No. 6 of 2006 (FTRA): This Act mandates reporting institutions (which would include regulated VASPs) to report suspicious transactions and sets out customer due diligence (CDD) and record-keeping requirements. It also established the Financial Intelligence Unit (FIU).

Identification and Verification of Customers:

Beneficial Ownership: Identify and take reasonable measures to verify the identity of the beneficial owner(s) of the customer, including for legal persons, identifying natural persons who ultimately own or control the customer.

Ongoing Due Diligence:

Reporting Threshold: Any transaction (regardless of amount) or attempted transaction where there are reasonable grounds to suspect that it may be linked to money laundering, terrorist financing, or other criminal activities.

Enhanced Due Diligence (EDD): Must be applied in higher-risk situations, such as:

AML/KYC Requirements (Specific to VASPs): No specific AML/KYC regulations are tailored for VASPs under a licensing framework. However, any entity operating in Sri Lanka would still be subject to general anti-money laundering and combating the financing of terrorism (AML/CFT) laws, such as the Financial Transactions Reporting Act No. 6 of 2006 (FTRA), if their activities fall within the scope of "financial institutions" or "designated non-financial businesses and professions (DNFBPs)" and trigger reporting obligations for suspicious transactions. The applicability to purely virtual asset businesses without fiat gateways is a grey area in the absence of explicit VASP definitions in the FTRA.

The CBSL views a potential e-Rupee as a safe, sovereign-backed alternative to private digital currencies, aiming to leverage the benefits of digitalization while mitigating the risks associated with private cryptocurrencies like stablecoins.