Central Bank of Sri Lanka Directions on Liquidity Risk Management for Finance Companies (No. 03 of 2025)

o, November 2025

1. Legal
   provisions
2. Objectives of
   the directions
3. Applicability
4. Liquidity risk
   management framework
   GOVERNING BOARD
   CENTRAL BANK OF SRI LANKA
   FIN��CE BUSINESS ACT DIRECTIONS No.03 of2025 LIQUIDITY RISK MANAGEMENT 1.1 2.1 3.1 In terms of the powers conferred by Section 12(1) of the Finance Business Act, No. 42 of 2011 read with the Section 133(1) of the Central Bank of Sri Lanka Act, No. 16 of 2023, the Central Bank of Sri Lanka (CBSL) hereby issues these directions on Liquidity Risk Management to Finance Companies (FCs) licensed under the Finance Business Act, No. 42 of 2011. Establishing a robust liquidity risk management framework in FCs through formulation of a liquidity risk management strategy, liquidity risk management policy and procedures, liquidity risk governance structure and effective liquidity risk management process to identify, measure, monitor and report, control and mitigate liquidity risk. These directions outline the key principles and minimum requirements for sound liquidity risk management framework and FCs shall adopt the principles and practices provided in these directions.
   3.2 The FCs with assets of Rs. 100 billion and above shall comply with
   these directions with effect from 01.04.2026 and FCs with assets less than Rs. 100 billion shall comply with these directions with effect from 01.04.2027. 4.1 4.2 The FC shall establish a robust liquidity risk management framework that is well integrated into its overall risk management framework. The liquidity risk management framework shall take into account inter alia the nature, size and complexity of business operations of FC, including the factors such as business model, risk profile, short￾to-long-term strategies, products, customer profile, level of off￾balance sheet exposures, geographic coverage and currencies in which FC transacts. 1

o, November 2025
GOVERNING BOARD
CENTRAL BANK OF SRI LANKA
FINANCE BUSI1''ESS ACT DIRECTIONS No.03 of 2025 ( d) Approach to be adopted in the event of liquidity shortfall, including the withdrawal of available liquidity support and the availability of contingency funding options. (e) Approaches to day-to-day management;and liquidity (f) Key assumptions on the liquidity and marketability of assets, under both normal and stress conditions, including a broader framework for liquidity stress testing.
iii. The FC shall ensure that its liquidity risk management
strategy is forward-looking and aligns with long-term business objectives, while taking into account the business cycle, as well as its impact on the composition and quality of the FC's liquid asset portfolio. b) Liquidity risk management policy and procedures
i. The FC shall develop and implement a comprehensive
liquidity risk management policy, to effectively identify, measure, monitor and report, control and mitigate liquidity risk across various time horizons, including day-to-day requirements.
ii. This policy shall be well defined, documented, and
consistent with the regulatory requirements and best practices, while adequately capturing the liquidity risks arising from the nature, scale and complexity of FC's operations. 3

O"\ November 2025
GOVERNING BOARD
CENTRAL BANK OF SRI LANKA
FINANCE BUSINESS ACT DIRECTIONS No.03 of 2025
iii. The FC shall establish an internal reporting mechanism
to provide regular updates to BoD/BIRMC/ALCO and relevant senior management on liquidity risk exposure and compliance with internal prudential limits. This reporting mechanism shall deliver accurate, timely, and forward-looking information that supports day-to-day liquidity risk management and facilitates the monitoring of compliance with FC's established policies, procedures and limits.
iv. The FC shall perform stress tests on liquidity risk in the
context of stressed macro-economic and financial conditions, on a quarterly basis or more frequently, as necessary, depending on the circumstances. Stress test results shall be used to adjust FC's liquidity risk management strategies, policies and risk profiles and to formulate effective CFPs.
v. The FC shall have formal CFP outlining strategies for
addressing liquidity shortfalls during emergencies. The CFP shall clearly set out policies for managing a range of stress scenarios, clear lines ofresponsibility, and clear invocation (a process for activating CFP) and escalation (a process for progressively enhancing the response and decision-making authority as liquidity stress intensifies from low to moderate or high risk) procedures. d) Control and mitigation
i. The FC shall set appropriate limits to control its liquidity
risk, in line with its liquidity risk appetite. Such limits shall also be relevant to the business of FC in terms of 10

01 November 2025
5. Disclosure
. �--� .""'-.�
'$ � �� �
GOVERNING BOARD
CENTRAL BANK OF SRI LANKA
5.1
FINANCE BUSINESS ACT DIRECTIONS No.03 of 2025 the concentration of exposure to the activity, nature of financial products, currencies and markets served. The FC shall regularly review such limits and corresponding escalation procedures.
ii. The FC shall use the limits set in accordance with
direction 4. 7 d) (i) for managing day-to-day and intraday liquidity positions of FC. Breaches of liquidity risk limits shall be escalated to higher levels of senior management, BIRMC and BoD, with each level required to propose and implement appropriate corrective measures to address such breaches.
iii. The FC shall carry out regular reviews and independent
assessments through its dedicated internal audit or risk management functions to ensure compliance with the approved liquidity risk management policy, internal procedures, and applicable regulatory requirements. These reviews shall also evaluate the effectiveness of the liquidity risk management process and its alignment with the FC's overall risk appetite and strategic objectives. The FC shall provide key elements of its liquidity risk management :framework and relevant information to stakeholders enabling them to make an informed decision about the soundness of its liquidity risk management framework and liquidity profile, under the management report in annual report of FC or website of such FC.
5.2 The FC shall include key liquidity risk indicators and relevant
updates in the FC's quarterly and half-yearly financial statements to ensure stakeholders have timely and up-to-date information. 11

o, November 2025
6. Reporting on
Material
Developments
GOVERNING BOARD
CENTRAL BANK OF SRI LANKA
FINANCE BUSINESS ACT DIRECTIONS No.03 of 2025
6.1 The BoDs of FC shall report to the Director, Department of
Supervision of Non-Bank Financial Institutions of any material developments in FC, such as drastic decline in liquid assets, a liquidity crisis or any other factor that could harm FC's ability to meet financial obligations, that may adversely impact the FC's liquidity risk profile and measures implemented/ to be implemented by FC to minimize such impacts. 12 t'--0�� �� Dr. P Nandalal Weerasinghe h Chairman of the Governing Board and Governor of the Central Bank of Sri Lanka