By: Staff Writer
December 08, Colombo (LNW): Sri Lanka’s non-banking financial sector is on the verge of its most significant overhaul in more than a decade, as the Central Bank of Sri Lanka (CBSL) pushes forward sweeping amendments to the Finance Business Act (FBA) No. 42 of 2011, the core legal framework governing finance companies and deposit-taking non-bank institutions.
The draft amendments now open for public comments until 30 November 2025—seek to seal long-standing regulatory gaps, strengthen supervision, and prevent a repeat of the high-profile collapses that have battered confidence in the sector in recent years.
The FBA, introduced in 2011 to replace the outdated Finance Companies Act, was designed to regulate licensing, governance, and operational conduct of finance companies.
However, persistent governance lapses, most visibly the failures of institutions such as The Finance Company and Bimputh Finance, exposed weaknesses in enforcement and supervision, undermining depositor trust and destabilising the wider financial system.
The Central Bank says the new reforms are intended to “modernise the law to match evolving market realities and align with global regulatory standards.” Under the proposed changes, the regulator will gain expanded investigative and enforcement powers enabling faster action against illegal deposit-taking and unlicensed financial operations issues that have repeatedly endangered vulnerable depositors.
A major feature of the amendment package is the introduction of pre-emptive resolution tools. These will allow the CBSL to restructure, merge, or wind down financially distressed companies before they threaten systemic stability. The move mirrors international post-crisis best practices aimed at preventing disorderly institutional collapses.
Governance reforms form another central pillar. Stricter “fit-and-proper” criteria will determine who can serve as directors and major shareholders, in an effort to ensure that only experienced and reputable individuals are allowed to manage regulated entities.
Furthermore, higher capital adequacy requirements, enhanced financial disclosure rules, and tighter controls over financial advertising are expected to improve transparency and reduce misleading deposit solicitation.
While the reforms have been broadly welcomed by analysts and consumer-protection groups, concerns are mounting within the industry—particularly among smaller finance companies. Senior officials warn that steep compliance costs and higher capital thresholds may push smaller NBFIs towards forced consolidation, potentially shrinking credit availability for small and medium-sized enterprises (SMEs), which remain central to post-crisis economic recovery.
Industry associations, including the Finance Houses Association, have requested more time to review the proposed amendments. Its chairman, Arjuna Gunaratne, stressed the need for detailed consultation before submitting formal responses.
Financial analyst Anuruddha Jayawardena echoed these concerns, noting that policymakers must strike a balance between safeguarding depositors and preserving access to legitimate credit, especially in underserved regions.
Experts argue that if introduced with careful sequencing, the reforms could help rebuild investor confidence, attract foreign capital, and significantly reduce systemic risk in the non-bank financial system. The public consultation period, they say, is a crucial opportunity to refine the framework and ensure that the restructuring of the sector is inclusive, stable, and resilient.
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