Annexure

Guidelines Applicable for Custodians for Onboarding Foreign Portfolio Investment Funds under the Securities and Exchange Commission of Sri Lanka Act No.19 of 2021

1. General Interpretation	The words and terms defined in the Securities and Exchange Commission of Sri Lanka Act No. 19 of 2021 shall remain, unless the context requires otherwise, have the same meaning as assigned to them in the said Act;
	"Commission" means the Securities and Exchange Commission of Sri Lanka established in terms of the Securities and Exchange Commission of Sri Lanka Act No. 19 of 2021;
	"SEC Act" means the Securities and Exchange Commission of Sri Lanka Act No.19 of 2021.
	"Central Depository" shall have the same meaning as defined in Section 188 of the SEC Act;
	"Central Depository Systems (Pvt) Limited (CDS)" is a wholly owned subsidiary of the Colombo Stock Exchange and is licensed as a Market Institution by the Securities and Exchange Commission of Sri Lanka.
	"Fund" means a Country, Regional and Global fund that invest in listed securities in Sri Lanka.
	"Foreign Portfolio Investment Fund", "FPI", "Foreign Portfolio Applicant" or "Applicant" means a Country, Regional, or Global Fund onboarded for the purpose of investing in listed securities in Sri Lanka. References to 'FPI', 'Fund' and 'Applicant' in these Guidelines are synonymous unless the context requires otherwise.
	"Custodian of a Country/Regional/Global Fund" means a Custodian Bank of a Country, Regional and Global Fund that falls within the definition of a Supplementary Service Provider under the SEC Act;
	"Custodian of a Securities Account" means a Bank licensed under the Banking Act, No. 30 of 1988 (as amended) providing custodial services and admitted as a Depository Participant and falls within the definition of a Supplementary Service Provider under the SEC Act;
	"Beneficial owner" shall have the same meaning as defined in the Financial Institutions (Customer Due Diligence) Rules of the Financial Intelligence Unit issued from time to time in terms of the Financial Transactions Reporting Act, No. 6 of 2006 (as amended).
	"Politically Exposed Persons" shall have the same meaning as defined in the Financial Institutions (Customer Due Diligence) Rules of the Financial Intelligence Unit issued from time to time in terms of the Financial Transactions Reporting Act, No. 6 of 2006 (as amended).
2. Applicability	a. These Guidelines may be cited as the Guideline Applicable for Custodians for Onboarding Foreign Portfolio Investment Funds under the SEC Act which are therefore and hereinafter referred to as 'these guidelines'
	b. A Custodian of a Securities Account shall, in addition to the guidelines contained herein, comply with the Rules of the relevant Exchange, Central Depository and Clearing House licensed by the Commission.
	c. Every Custodian shall comply with;
	i. The guidelines set out herein and any amendments made thereto;
	ii. Provisions of the SEC Act which may be relevant and/or applicable to a Custodian; and
	iii. Directives issued from time to time by the Commission;
3. Authority	a. These Guidelines are issued by the Commission under the SEC Act and shall be read together with Directives issued by the Commission, applicable CDS Rules, applicable Laws and the Rules, Directions, Regulations, Guidelines and Circulars issued by the Financial Intelligence Unit of Sri Lanka (FIU) relating to Anti Money Laundering (AML), Countering the Financing of Terrorism (CFT) and Countering the Proliferation Financing (CPF).
	b. These Guidelines are supplementary to the Guidelines applicable to Custodians who provide services to a Market Institution, Market Intermediary, Listed Public Company or Collective Investment Scheme (hereinafter referred to as the “existing Guidelines”) issued by the SEC and shall be read together with the existing Guidelines.
	c. Notwithstanding anything contained in the existing Guidelines, Clauses 9,10,11 relating to “Duties of a Custodian of a Country/Regional/Global Fund” of the existing Guidelines are hereby rescinded and shall be replaced by the provisions set out in these Guidelines.
	Accordingly, the provisions of these Guidelines shall apply in place of the said Clauses 9,10,11 of the existing Guidelines to the extent specified herein.
	Further the words 'approval from the Commission' shall be removed from the definition of “Fund” in the existing Guidelines.
4. Purpose	To establish a risk based regulatory framework enabling Designated Custodian Banks to undertake operational onboarding of foreign portfolio investment funds within an appropriate oversight and compliance framework.
5. Objectives	The objectives of these Guidelines are to;
	(a) improve market accessibility for foreign portfolio investors;
	(b) reduce onboarding timelines;
	(c) strengthen investor protection and market integrity;
	(d) comply with AML/CFT and CPF requirements; and
	(e) support Sri Lanka’s capital market development.
6. Eligibility	A Custodian Bank shall be a Bank licensed by the Central Bank of Sri Lanka and a Depository Participant of the CDS, and shall maintain adequate governance arrangements, robust AML/CFT/CPF controls, suitably qualified personnel, secure and resilient technology systems, effective business continuity and disaster recovery arrangements, and an independent internal audit function.

The Custodian Bank shall, at a minimum, conduct the following verifications, and shall record the date, the source and the evidence of each verification on the Applicant's file.

a. Country Check - The residency status of the foreign portfolio applicant may be ascertained from the place of incorporation/establishment through appropriate documents or information such as identification, registration document issued by the applicable regulator or the income tax authority. For due diligence inter alia the custodian bank may verify the country as follows;

Item	Countries	Source of verification from website of
1	List of countries where the securities market regulator is a signatory to IOSCO MMOU shall be verified by the Custodian Bank	International Organizations of Securities Commissions (IOSCO)
2	List of Countries that have MOU's with SEC	Securities and Exchange Commission of Sri Lanka (SEC)
3	List of countries whose Central Bank is a member of BIS	Bank for International Settlements (BIS)
4	List of countries that are listed in the public statements issued by FATF and the list of FATF Member countries	Financial Action Task Force (FATF)

b. Fitness and Propriety - the Custodian Bank shall obtain the declaration from the applicants and shall exercise its due care and diligence as applicable to determine eligibility.

c. Details of the Fund - the Custodian Bank shall obtain and verify the particulars of the Fund including its date of incorporation, registered or business address, purpose or objective and any other relevant information shall also be verified based on the documents submitted, and shall confirm that the Fund is permitted to invest in Sri Lanka.

d. Details of the Trustee, Manager and/or Investment Advisor of the Fund - the Custodian Bank shall obtain and verify the particulars of the Trustee, Manager and/or Investment Adviser of the Fund, including their respective dates of incorporation, registered or business addresses, and any other relevant information.

e. Regulatory Check - The Custodian Bank shall verify that the Applicant, where regulated or supervised by a securities market regulator or banking regulator, holds a registration or license that is valid, has not been cancelled or suspended, and is not subject to any current adverse regulatory action by;

	i. Obtaining a copy of the certificate issued by that regulator; ii. Verifying the registration details directly from the registry or website of that regulator; and iii. In every case, check the IOSCO I-SCAN system for any alert or warning relating to the Fund, its Trustee, Manager, Investment Adviser or other relevant parties.
	f. Beneficial Owners - The Custodian Bank shall identify and take reasonable measures to verify the identity of the Beneficial Owners of the Fund.
7. Allocation of Functions	a. Primary onboarding by the Custodian Bank - The Custodian Bank shall be responsible for the primary onboarding of the Fund, including KYC and beneficial ownership verification, document authentication, eligibility assessment, risk classification, and sanctions screening, and shall issue a compliance confirmation prior to submitting the application to the CDS.
	b. When submitting the Application to the CDS, the Custodian Bank shall; i. Exercise due care and diligence to ensure that the information submitted is complete, accurate and up to date; ii. Ensure that the requirements stipulated in the Financial Transactions Reporting Act No. 06 of 2006 (as amended), Prevention of Money Laundering Act, No. 5 of 2006 (as amended), Convention on the Suppression of Terrorist Financing Act No 25 of 2005 (as amended), the Rules and Regulations issued by the Financial Intelligence Unit of Sri Lanka as well as the Foreign Exchange Act, No. 12 of 2017 and any regulations, orders, directions, circulars or guidelines issued thereunder, as amended or replaced from time to time, insofar as they are applicable to the activities undertaken by the Custodian Bank have been complied with, at the time of submitting the documents to the CDS; iii. Disclose the beneficial owners of the Fund; and iv. Furnish any additional information that the CDS may require in connection with the application made by the Custodian in respect of a Fund.
	c. Allocation of Account Number and Activation of the Securities Account in the CDS and such implementation shall consist of two (02) phases. i. First Phase - The activation of accounts via CDS until the Decentralized System Go-Live. The CDS will allocate an account number as soon as the Custodian Bank confirms that they are ready to open the account which will automatically activate the account based on an undertaking by the Custodian Bank. ii. Second Phase – The Custodian Bank shall open and activate the account, following which the CDS shall conduct a post-onboarding compliance review to verify data quality and adherence to the applicable regulatory and operational requirements.

8. Conditions, Suspension and Revocation	The Commission may impose such conditions, suspend or revoke designation for onboarding foreign portfolio investment funds as it considers appropriate where deficiencies are identified.
9. Duties of a Custodian of a Country, Regional or Global Fund	I. GOVERNANCE a. Board Responsibilities Approve onboarding, AML/CFT/CPF, screening sanctions, outsourcing and risk management policies and receiving periodic compliance reports.
	b. Liability The Custodian Bank shall bear full responsibility and liability for the accuracy and completeness of its onboarding determinations taken, including any loss arising from its negligent onboarding of an ineligible, sanctioned or high-risk applicant, without prejudice to the Commission's powers under the SEC Act and Rules and Regulations promulgated thereunder.
	c. Management Responsibilities Ensure adequate staffing, training, segregation of duties, escalation procedures and oversight of delegated activities.
	d. Internal Controls Maintain maker-checker controls, independent compliance review, operational risk management, and annual internal audit.
	II. OPERATIONAL REQUIREMENTS a. Customer Due Diligence The Custodian Bank shall undertake KYC, beneficial ownership verification, source of funds review, sanctions screening, adverse media checks and risk assessment before onboarding.
	b. Documentation The Custodian Bank shall maintain standardized document checklists and accept equivalent evidence where justified and documented.
	c. Risk Classification Classify applicants as low, medium or high risk based on jurisdiction, ownership, product, investor profile and sanctions exposure.

d. Enhanced Due Diligence
Mandatory for PEPs, high-risk jurisdictions, complex ownership structures, and unusual transactions to ensure that the information submitted by the funds is complete, accurate, and in compliance with the regulatory requirements of the FIU.

e. Compliance with FIU
The Custodian Bank shall ensure that the requirements stipulated in the Financial Transactions Reporting Act No. 06 of 2006/Financial Transactions Reporting (Amendment) Act No 17 of 2026, Prevention of Money Laundering Act, No 05 of 2006 (as amended) and the Rules and Regulations issued by the Financial Intelligence Unit of Sri Lanka have been complied with, when onboarding Foreign Portfolio Investment Funds.

f. Compliance with Foreign Exchange
A Custodian Bank shall at all times comply with Foreign Exchange Act, No. 12 of 2017 and any regulations, orders, directions, circulars or guidelines issued thereunder, as amended or replaced from time to time, insofar as they are applicable to the activities undertaken by the Custodian Bank.

III. INFRASTRUCTURE

Every Custodian Bank shall have necessary infrastructure including adequate office space, adequate and competent manpower, computer systems and record keeping capability required to discharge its activities in compliance with regulations, guidelines, circulars issued thereunder in relation to oversight on foreign portfolio investments.

IV. MANUAL

Every Custodian Bank shall have a manual, setting out systems and procedures to be followed for the effective and efficient discharge of its functions as a Custodian Bank.

V. MONITORING SYSTEMS AND CONTROLS

Every Custodian Bank shall have adequate mechanisms for the purpose of reviewing, monitoring and evaluating its controls, systems, procedures and safeguards.

VI. NAME CHANGE

In the event that the FPI has undergone a change in name, the request for update/incorporation of new name should be submitted by the FPI to the Custodian Banks accompanied by documents certifying the name change. Such name change can be evidenced by:

a. Information available on the website of the home regulator; or

b. Certified copy of documents from the home regulator; or

c. Certified copy of documents from registrar of company

(or equivalent authority) (where applicable) issued; or

d. Where above is not applicable, a board resolution or equivalent authorizing the name change. An undertaking to be obtained from the FPI that it is a mere name change and does not involve change in beneficial ownership, category or structure.

CDS shall obtain an undertaking from the FPI that it is a mere name change and does not involve change in beneficial ownership, category or structure

VII. EXIT AND OFF-BOARDING

Where a Fund is deregistered by its home regulator, becomes subject to sanctions, or voluntarily exits the Sri Lankan Market, the Custodian Bank shall notify the CDS and close the account.

VIII. ONGOING MONITORING

Review investor information periodically, update KYC, monitor sanctions, and report material changes.

IX. SUPERVISORY OVERSIGHT

The CDS shall exercise ongoing supervisory oversight over every Custodian Bank under this Guideline and may conduct onsite inspections, thematic reviews, sample file reviews and request any records as deemed required.

X. SUBMISSION OF INFORMATION TO THE COMMISSION

a) Record-Retention

The Custodian Bank shall maintain complete and accurate records and audit trails in respect of its activities in relation to on-boarding foreign portfolio investment funds and shall retain such records and audit trails for a period of not less than six (06) years from the date of the relevant transaction, activity or event or for such longer period as may be required under any applicable written law as may be directed by the Commission.

b) Technology

The Custodian Bank shall maintain secure electronic onboarding systems, cybersecurity controls, audit logs and disaster recovery capabilities.

c) Reporting

The Custodian Bank shall submit to CDS monthly reports on applications received from FPI applicants as per the format set out in Schedule I hereto within 20 days from the end of the particular month and such other reports as may be required by the SEC. Such monthly reports shall be signed by a Director and the Chief Executive Officer of such Custodian Bank.

d) Preparation of the Following Schedules

Schedule I – Monthly Reporting to CDS

Operational statistics

Item	Number
Applications Received
Applications Approved
Applications Rejected
Pending Applications
Average Processing Time
High Risk Applications

Schedule II – Compliance Report (quarterly)

The Compliance Officer of the Custodian Bank shall make a quarterly compliance report on or before the 20th day of the following month to CDS. The said Report shall include amongst others, the contents specified in Schedule II of these Guidelines including a Certification by the Chief Executive Officer and Compliance Officer.

We hereby certify that:

• The Custodian Bank has complied with the applicable provisions of the Securities and Exchange Commission of Sri Lanka Act No. 19 of 2021 and these Guidelines;

• All onboarding procedures were conducted in accordance with approved policies;

• The Custodian Bank has complied with the Rules, Circulars and Regulations issued by the CDS;

• Foreign Exchange Act, No. 12 of 2017 and any regulations, orders, directions, circulars or guidelines issued thereunder, as amended or replaced from time to time, insofar as they are applicable to the activities undertaken by the Custodian Bank have been complied with in respect of the application;

• Financial Transactions Reporting Act No. 06 of 2006 (as amended) Prevention of Money Laundering Act, No. 5 of 2006 (as amended), Convention on the Suppression of Terrorist Financing Act No 25 of 2005 (as amended) and the Rules and Regulations issued by the Financial Intelligence Unit of Sri Lanka have been complied with in respect of the application;

• All sanctions screening has been completed;

• All records have been retained in accordance with applicable laws;

• Internal audits have been completed;

• Deficiencies identified have been rectified;

• No material regulatory breaches remain outstanding.

Signed Chief Executive Officer Chief Compliance Officer

Date

Note: This quarterly certification is separate requirement and is in addition to the monthly operational reporting obligations prescribed under the Reporting section of this Guideline.