Regulatory Alerts2020-09-30 | Banking Act Direction No. 10 of 2020Amendments to Banking Act Directions on Financial Derivative Transactions for Licensed Commercial Banks and Licensed Specialised Banks
The Monetary Board of the Central Bank of Sri Lanka amended Banking Act Directions No. 4 of 2018 to encourage foreign capital inflows by updating financial derivative transaction rules for licensed commercial and specialised banks. The revised framework redefines Non Market Maker deals to mandate same-day back-to-back covering without retaining market risk, while restricting marked-to-market gain payments except for derivatives linked to government securities held by foreign investors. Furthermore, the amendments exempt inward investment swaps from specific gain-payment requirements and insert a new provision to streamline regulatory compliance for eligible transactions.
30 September 2020 MONETARY BOARI) CENTRAL BANK OF SRI LANKA BANKING ACT DIRECTIONS No. 10 of 2020 AMENDMENTS TO BANKING ACT DIRECTIONS ON FINANCIAL DERIVATIVE TRANSACTIONS FOR LICENSED COMMERCIAL BANKS AND LICENSED SPECIALISED BANKS In the exercise of the powers conferred by Sections a6(1) and 76J(1) of the Banking Act No. 30 of 1988, as amended, the Monetary Board, having considered the necessity to encourage foreign inflows to the country, hereby issues the following Directions amending the Banking Act Directions No. 4 of 2018 dated 21.08.2018 on Financial Derivative Transactions for Licensed Commercial Banks and Licensed Specialised Banks. Accordingly, Directions 5.1 b) and 5.7 c) are replaced, and Direction 5.11 is inserted immediately after Direction 5.10 as follows: 5. General Terms and Conditions 5.1 5.7 b) Non Market Maker (NMM) Deals: Transactions executed by EBs with their customers, i.e., any party other than an EB or with another EB with the intention of making a spread. In these transactions an EB shall not take any market risk into its own books and shall cover the transaction on the same day on a back-to-back basis with another EB in Sri Lanka or with a foreign counterparty or Central Bank of Sri Lanka. c) a marked-to-market gain (financial gain) should not be paid to the customer. However, EBs may pay the marked-to-market gain arising from unwinding/selling back of derivatives for which the underlying transaction is an investment in Government Securities, by foreign investors; In the case of Inward Investments SWAPs entered into by licensed commercial banks in terms of Operating Instructions No. 331041012100111002 dated 23.09.2020 and any subsequent instructions, issued by the Central Bank of Sri Lanka, Directions 5.7 shall not be applicable. ffirbbv*-^, Chairman of the Monetary Board and Governor of the Central Bank of Sri Lanka 5.11