The scale of money laundering has increased recently due to various reasons. The global economic volatility brought on by geopolitical tensions, disruptions in international trade as well as misuse of emerging technologies are some of the main causes. Within this challenging environment, money launderers may exploit opportunities beyond traditional financial institutions (Akartuna, E., et al, 2023). Non-financial institutions represent a major share in many economies and have become increasingly vulnerable to such criminal activities. The Financial Actions Task Force (FATF), the global policy setter on combating money laundering, terrorist financing and financing of proliferations, has recognised the vulnerable areas and several higher risk non-financial institutions. They are named as Designated Non-financial Businesses and Professions (DNFBPs). However, the focus of country authorities on the risk emanating from the DNFBP sector is far less than the Financial sector. It provides greater opportunities to exploit such sectors for money laundering purposes, especially during periods of global unrest and economic uncertainties. This is confirmed by the worldwide poor evaluation results by the FATF on risk identification and implementation of Anti-Money Laundering and Anti-Terrorist Financing (AML/CFT) control measures in the DNBFP sector. This could be due to the lack of proper assessments of money laundering threats and vulnerabilities, i.e., the money laundering risk of the sector. One major impediment in applying regular approaches to assess risk in the DNFBP sector is insufficient data availability. This case is more critical in emerging and developing economies. In this study, I propose a conceptual “bottom-up approach” for DNFBPs to assess Money Laundering and Terrorist Financing (ML/TF) risks, considering the lack of data and informality prevailing in the sector. Within this conceptual framework, an index is proposed to assess vulnerability, and the index will allow authorities to evaluate preliminary risk levels. Further, this will help the sector to allocate required resources to combat higher ML/TF threats. In addition, based on this framework, I have identified six main challenges that affect the proper control of illegal activities in the DNFBP sector, namely, 1) lack of regulatory requirements and supervisory concerns, 2) lack of awareness of corporate management of firms and lack of technology in firms, 3) primitive state of businesses, 4) political interventions, 5) lack of government support and 6). structural issues, such as the sector not being well established in the country. Moreover, these align with factors discussed often in the country mutual evaluation report by FATF. Finally, I discuss a case study to elaborate how Sri Lanka has successfully faced such challenges during its period of introducing and implementing the FATF requirements in the country’s Non-financial sector.
This study investigates key factors influencing tourism demand in Sri Lanka over the past five decades, using a Machine Learning (ML) modeling approach. It also estimates potential losses in tourism earnings during periods of domestic and external shocks. The findings reveal that tourist arrivals were significantly affected by historical arrival patterns, macroeconomic variables such as domestic inflation and the exchange rate, and various shocks including periods of civil war, terrorist attacks, natural disasters, and financial crises. The COVID-19 pandemic was identified as the principal external shock. Among the ML models evaluated, Multiple Linear Regression (MLR) and Extreme Gradient Boosting Regression (XGBR) demonstrated the highest accuracy in predicting tourist arrivals across different historical episodes, outperforming models such as Support Vector Regression (SVR), K-Nearest Neighbor Regression (KNN), and Gradient Boosting Regression (GBR). The study successfully quantifies the loss in tourist arrivals and potential tourism earnings attributable to these shocks within a historical context.
I am deeply honoured to be delivering this oration on the occasion of the 75th Anniversary of the Central Bank of Sri Lanka (CBSL). As the Governor of this great national institution, I accepted the task of delivering this oration on central bank independence at this landmark moment with a deep sense of responsibility, knowing that the work of central bankers is never complete. The lessons the country, its people, the Central Bank, its staff and leadership have learnt over this long history must be recorded and shared, enabling future generations to build on and contribute to the prosperity of the people of Sri Lanka better. Before I begin, I would like to take this opportunity to extend my heartfelt thanks to all well-wishers and stakeholders - especially the dedicated staff - for their invaluable contributions towards achieving the objectives of the Central Bank over the past 75 years. In particular, I wish to express my deep gratitude to the members of the Central Bank Boards and the staff for their exceptional commitment over the past three years. Their tireless efforts played a pivotal role in stabilising the economy and laying the foundation for a swift and sustainable recovery from the most profound socioeconomic crisis Sri Lanka has faced since independence. Seven and a half decades ago, in 1950, our nation took a momentous step towards economic sovereignty with the establishment of the Central Bank of Ceylon. This was a decision that our founder Governor John Exter noted as demonstrating our “intention to achieve genuine economic freedom as a corollary of the political freedom” that Sri Lanka had gained just 2 years earlier. Looking back, we see that the journey of the CBSL has been one of continuous learning and evolution to enable such freedom through “the fuller use of the nation’s human and material resources and a rising standard of comfort for all” as described by Exter. Today, we will reflect on how the CBSL has evolved over last 75 years and the need to protect gains in terms of independence and accountability. While addressing some common myths and criticism, I will also examine the challenges that central bank independence faces amid evolving domestic and global pressures. Accordingly, over the next hour, I expect to carefully build my case on why and how every Sri Lankan must preserve the Central Bank’s independence and its accountability to protect the bedrock of stability for our nation to thrive in the period ahead.
Corporate governance standards have evolved over the past three decades in response to numerous corporate scandals. Many fragilities in financial institutions observed across the world could be traced back to failures in corporate governance practices. In Sri Lanka, several domestic financial institutions barely demonstrated resilience to sever corporate governance malpractices during 2007-08. As such, the Central Bank of Sri Lanka (Central Bank) introduced mandatory corporate governance code for Licensed Commercial Banks (LCBs) in December 2007, to enhance overall stability in the banking sector. The objective of the study is to examine the level of compliance demonstrated by LCBs with the provisions of the Central Banks’s mandatory code of corporate governance during the first year of its implementation. This study sheds light on the readiness, preparedness and willingness of banks in implementing these directions in the first year of adoption and attempts to enrich the literature on corporate governance practices of domestic LCBs. The study has been confined to domestic LCBs and is based on secondary data gathered through their annual reports. These reports were analysed using a checklist which was developed based on five assessment criteria identified in the conceptual model of the study. This model further conceptualises the principal-agent relationship between key stakeholders of an LCB and its directors. A score has been assigned to each principle and a composite score has been devised to assess the overall level of compliance. The findings reveal that domestic LCBs on average reported a commendable level of compliance in the first year of implementation. The study also reveals the challenges that prevailed during the first year of implementing the mandatory code of corporate governance.
Sri Lanka formally adopted a Flexible Inflation Targeting (FIT) monetary policy framework in 2020. Along with this transition, the target level of inflation has become a focal point for implementing FIT. This policy paper discusses several considerations when selecting a target for inflation in the context of Sri Lanka, such as the choice between headline and core inflation and the choice of the price index. It undertakes several descriptive and empirical analyses to arrive at the possible numerical value(s) of the target (or range). The results of these analyses suggest a point target for the Colombo Consumer Price Index (CCPI)-based year-on-year headline inflation at 5 per cent, with a margin of ±2 percentage points to be suitable for Sri Lanka for considering operationalisation of FIT under the Central Bank of Sri Lanka Act No. 16 of 2023 (CBA). 2 This exercise should be repeated periodically to assess whether the inflation target under the Monetary Policy Framework Agreement needs to be revised, especially as economic conditions continue to evolve.
