Finance Business Act Directions No.04 of 2026 on Structural Changes

03 August 2026
J. Legal provisions
2. Objective of the
directions
3. Applicability
4. Regulatory
requirements for structural changes GOVERNING BOARD CENTRAL BANK OF SRI LANKA FINANCE BUSINESS ACT DIRECTIONS STRUCTURAL CHANGES No.04 of 2026 In terms of the powers conferred by Section 12 ( 1) of the Finance Business Act, No. 42 of 2011, the Central Bank of Sri Lanka (CBSL) hereby issues these directions on Structural Changes to all Finance Companies (FCs) licensed under the Finance Business Act, No. 42 of 2011. Ensuring that structural changes of FCs take place in a prudent, transparent and orderly manner, while safeguarding the resilience and soundness of FCs and the stability of the financial system. These directions will be effective from the date of issuance of these directions to all FCs, subject to the transitional provisions given in direction 7. FC shall obtain prior approval from the approving authority specified in Annexure I to these directions for the structural changes listed below. a) Formation or acquisition or operation of a subsidiary or an associate company, subject to the following conditions.

1. FC shall not form another FC as its subsidiary or
   associate company.
2. FC shall not form or acquire or operate a
   subsidiary or an associate company within Sri Lanka, that provides non-financial services, unless such services are required to carry out the core business of FC.
3. FC shall ensure that the majority of services
   provided by subsidiary or associate company

O 3 August 2026
5. Limitation on
transfer/sale of assets
6. Limits on
investment in ordinary shares
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GOVERNING BOARD
CENTRAL BANK OF SRI LANKA
FINANCE BUSINESS ACT DIRECTIONS N o.04 of 2026 6.1 referred in direction 4. a) ii above, is directed towards the respective FC, while a limited level of services may be provided to third parties, where necessary, to ensure the operational sustainability of the subsidiary or associate company. 1v. FC shall not form or acqmre or operate a subsidiary or an associate company outside Sri Lanka, unless such company; (a) provides only financial services; (b) is regulated by a financial sector regulator in the host jurisdiction; and (c) does not operate with multi-layered, cross-jurisdictional ownership structures. Where a holding structure is adopted for justifiable reasons, such structure shall be limited a single intermediate holding company. b) Changes in share capital of FC c) Other structural changes No FC shall transfer or sell any of its assets for any consideration other than for monetary consideration, which should pass in favour of FC. Investments in the ordinary shares of any company made by FC shall be subject to the following conditions; a) Investment in the issued ordinary share capital of a company shall not at any time exceed five (5) per cent of the core capital of FC as shown in the capital adequacy return for the immediately preceding quarter; and

C, 3 August 2026
7. Transitional
provisions
8. Definitions
GOVERNI~G BOARD
CENTRAL BANK OF SRI LANKA
FINANCE BUSINESS ACT DIRECTIONS No.04 of 2026 b) The aggregate amount invested in the issued ordinary share capital of companies shall not at any time exceed twenty-five (25) per cent of the core capital of FC as shown in the capital adequacy return for the immediately preceding quarter.
6.2 Notwithstanding the provisions of direction of 6.1 above, an
FC that complies with the regulatory capital requirements, may form or acquire a subsidiary or an associate company with the approval of CBSL.
6.3 The provisions of direction 6.1 above shall not apply to any
shares which FC acquires in the course of the satisfaction of any debt due to such FC provided that, where such acquisition of shares results in FC holding shares in excess of the percentage limits stipulated in direction 6.1 above, such FC shall dispose such excess shares within the period determined by CBSL.
7.1 A transitional period of five (5) years from the effective date
of these directions shall be granted for FC to divest its existing investments in subsidiary or associate companies that are not in compliance with direction 4. a) above. 7 .2 When the investment in ordinary shares of companies referred to in direction 6.1 above exceeds due to the amendments in the prudential limits, such investments shall be reduced to a level below the limit within a period of one (1) year from the effective date of these directions. In this direction, a) "Associate company" shall have the same meaning as contained in the definition in Section 74 of the Finance Business Act, No.42 of 2011.

6 3 August 2026
9. Revocation of
direction
GOVERNING BOARD
CENTRAL BANK OF SRI LANKA
FINANCE BUSINESS ACT DIRECTIONS N o.04 of 2026 b) "A Business activity, which is not directly related to finance business" means any activity that is undertaken by an FC to support its core business. Such activities may include, among others, the valuation of vehicles for which a credit facility is to be provided, or of repossessed vehicles, using qualified internal valuers; operating vehicle repair units for the maintenance of repossessed vehicles; and similar supportive functions. However, FC shall ensure that these activities are utilized exclusively for its own business purposes. c) "Core capital" shall have the same meaning as contained in the definition in Section 74 of the Finance Business Act, No.42 of 2011. d) "Subsidiary company" shall have the same meaning as contained in the definition in Section 74 of the Finance Business Act, No.42 of 2011. e) "Non-financial services" means any activities other than the activities conducted by a financial sector participant, as defined in the Central Bank of Sri Lanka Act, No. 16 of 2023. f) "Prevailing market value" shall mean the estimated price determined by a licensed valuer for which an asset should exchange between a willing buyer and a willing seller in an arm's length transaction, at a specified point in time. g) "Director" means the Director of the Department of Supervision of Non-Bank Financial Institutions (DSNBFI) of CBSL. The following directions will be revoked from the effective date of this direction.

03 August 2026
GOVERNING BOARD
CENTRAL BANK OF SRI LANKA
:FINANCE BUSINESS ACT DIRECTIONS N o.04 of 2026 a) Finance Companies (Investments) Direction No.07 of 2006. b) Finance Companies (Structural Changes) Direction No. 01 of2013. c) Finance Business Act (Amendments to Direction on Structural Changes) Direction No. 08 of 2018. M. v--,-:;,C« ·~ ,I "'-A"-. ~--~ , - ~ Dr. P Nandalal Weerasinghe Chairperson of the Governing Board and Governor of the Central Bank of Sri Lanka

Annexure I
Table I: Structural Changes and Approval Requirements
Structural changes Approving
Authority

1. Matters relating to subsidiary or associate company Governing
   a) Forming or acquiring a subsidiary or an associate company within Board of or outside Sri Lanka CBSL b) Enhancing PC's investment in share capital of a subsidiary or an associate company c) Acquiring or selling who le or part of the business of a subsidiary or an associate company
2. Changes in share capital of FC (any increase or decrease in the number Director,
   of shares or the total amount of share capital arising from share issuances, DSNBFI cancellations, splits, consolidations, share buy-backs or other capital adjustments)
3. Other structural changes
   a) Selling whole or a part of FC's business Governing b) Acquiring whole or part of the business of any company Board of c) Amalgamating, consolidating or merging with any other financial CBSL institution d) Changing the name of FC e) Restructuring the Board ofFC (i.e., changes in the majority of the Board, where more than fifty (50) per cent of the Board members are replaced within a period of three months) f) Changing its Articles of Association Director, g) Commencing/ operating a business activity, which is not directly DSNBFI related to finance business h) Transferring or selling any of its assets of a book value of more than ten (10) per cent of core capital of such FCs, as shown in the capital adequacy return for the immediately preceding quarter, in a single transaction or through a series of related or connected transactions, at a price less than the prevailing market value