Regulatory & Policy News
View all(91)📈 President Takes Direct Oversight of AML/CFT Review to Avert Grey-List Risks
President Anura Kumara Dissanayake has intervened to personally oversee Sri Lanka’s Third Mutual Evaluation on Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT), signaling high-level political ownership to protect the nation’s financial integrity. • The Risks: Failure to meet Financial Action Task Force (FATF) standards risks returning Sri Lanka to the "grey list". This could deter foreign investment, increase compliance costs, and disrupt vital cross-border financial transactions. • Strategic Context: The evaluation, overseen by the Asia/Pacific Group (APG), assesses technical compliance with 40 FATF recommendations and effectiveness across 11 outcomes. Previous lapses led to grey-listing in 2017, which the current administration aims to avoid through "good governance and accountability." • Key Directives: • Legislation: Expedite all pending technical amendments and legal reforms. • Human Resources: Resolve staffing shortages by fast-tracking recruitments and re-engaging experienced retired officers on 1-year contracts. • Stability: A special circular will be issued to retain trained staff in their posts until the evaluation concludes in November 2026. • Timeline: A Special Task Force (STF) must submit a progress report to the President within two weeks. _Summary based on official presidential review and provisional evaluation data._
## 📈 China to Ban Hidden Car Door Handles by 2027
China’s Ministry of Industry and Information Technology has announced a ban on hidden/flush door handles starting January 1, 2027, citing critical safety concerns. This shift impacts the global automotive and EV supply chains, where minimalist designs have become an industry standard. • New Safety Regulations: All vehicles (excluding tailgates) must feature both interior and exterior mechanical releases. This ensures doors remain operable during power failures or post-crash emergencies. • Compliance Timeline: New models must comply by 2027, while previously approved models are granted a two-year extension to phase out existing designs. • Industry Context: Popularized by Tesla in 2012, these handles reduce drag but have faced scrutiny following high-profile accidents, including a fatal crash involving a Xiaomi EV where rescuers could not open the doors. • Global Impact: As the world’s largest EV market and home to BYD (now the global leader in EV sales), China’s regulatory shift will likely force a design pivot across the manufacturing and automotive electronics sectors worldwide. _Note: Based on official MIIT policy announcements as of Feb 2026._ ---
Legal Officers Condemn Pressure Campaigns Against AG ⚖️
The Legal Officers’ Association of the Attorney General’s Department has issued a formal resolution condemning a series of "unfounded and personal attacks" targeting Attorney General Parinda Ranasinghe (Jnr.), PC, and his officers. • Key Concerns Raised: The Association warns that coordinated efforts are being made to exert pressure on the Department, aiming to undermine its professional independence. It specifically noted the systematic misuse of social media to create a false perception of public dissatisfaction. • Impact on State Functions: Persistent intimidation and smear campaigns risk demoralizing state counsel. This could directly impair the Department’s ability to discharge its constitutional responsibilities in the public interest—a critical component for maintaining the rule of law and investor confidence. • Legal Recourse & Accountability: The Association emphasized that while the AG is subject to the rule of law, legitimate grievances should be pursued through established legal avenues rather than "trials by media." • Public Appeal: Stakeholders and the public are urged to refrain from sharing unverified information. The resolution reaffirms the Association's confidence in the AG's leadership amidst these challenges to the administration of justice. _Note: Based on a resolution adopted at a Special General Meeting held on 29 January 2026._
📈 Sri Lanka Moves to Shield Tax Revenue with "Two-Basket" FDI Strategy
As global tax rules shift, Sri Lanka is urged to overhaul its investment incentives to prevent local tax revenue from being siphoned by foreign treasuries. With the OECD’s Global Minimum Tax (GMT) of 15% now active for major economies, traditional tax holidays for large firms are becoming obsolete. • The Pillar Two Challenge Under the OECD framework, Multinational Enterprises (MNEs) with annual revenues over €750 million must pay a minimum 15% tax globally. If Sri Lanka offers a 0% rate, the firm’s home country can collect the 15% "Top-Up Tax," effectively turning Sri Lankan concessions into a "donation" to foreign governments. • Proposed "Two-Basket" Strategy Basket 1 (SMEs): Retain traditional profit-based incentives and tax holidays for smaller investors (under €750M revenue) to drive local employment. Basket 2 (Large MNEs): Shift to cost-based incentives, such as Enhanced Capital Allowances (ECA), to reward actual physical investment rather than paper profits. • Technical Modernization Substance-Based Income Exclusion (SBIE): Leveraging carve-outs for "real" economic activity like factories and payroll. Qualified Refundable Tax Credits (QRTC): Adopting cash-refundable credits—the global "gold standard"—to benefit investors without lowering their effective tax rate below the 15% threshold. • Regional Context Competitors like Vietnam, Thailand, and Singapore are already legislating these "smart" incentives. Experts warn that sticking to blanket tax holidays for large ICT/BPM or manufacturing giants risks making Sri Lanka's fiscal toolkit uncompetitive in a "streaming era."
India Announces 20-Year Tax Holiday for Global AI & Cloud Hubs 📈
India’s 2026-27 Budget introduces aggressive incentives to position the nation as a global leader in AI and ICT/BPM infrastructure, directly impacting regional tech competition. • Tax Incentives: A 20-year tax holiday (until 2047) for foreign cloud providers on revenue from services sold outside India, if delivered via local data centres. • Investment Inflow: Global giants have committed massive capital, including Amazon (US$ 35 Bn), Microsoft (US$ 17.5 Bn), and Google (US$ 15 Bn). Domestic players like Reliance and Adani are also investing billions in AI campuses. • Capacity Growth: India’s data centre power capacity is projected to jump from ~1 GW to 2 GW by 2026, potentially reaching 8 GW by 2030, backed by over US$ 30 Bn in capital. • Semiconductors & Electronics: Budgeted spending for the Electronics Components Manufacturing Scheme increased to INR 400 Bn (from INR 229.19 Bn). A second phase of the India Semiconductor Mission will focus on local chip IP and equipment. • Operational Challenges: Despite the incentives, scaling remains constrained by high electricity costs, power availability, and water stress. _Context_: These moves signal a significant shift in regional digital infrastructure, as India aggressively courts the high-tech manufacturing and data services sectors.
## 📈 Audit Leadership Vacancy: Risks to Fiscal Governance
Sri Lanka remains without a substantive Auditor General since April 2025, raising critical concerns over the country’s fiscal oversight and constitutional administration. A decision on a new appointee by the Constitutional Council is expected today, February 3, 2026. • Core Institutional Role The office provides independent assurance to Parliament on the use of public resources across Government departments, State-Owned Enterprises (SOEs), and local authorities. It is central to maintaining transparency and public confidence in financial management. • Current Governance Impact The 10-month vacancy has disrupted the systemic oversight of public finance. Key areas affected include: Accountability: Identification of financial risks and governance gaps in SOEs. Oversight: Legislative engagement through audit reports which guide corrective policy actions. Global Standing: Adherence to INTOSAI (International Organisation of Supreme Audit Institutions) standards, which mandate institutional independence and security of tenure. • Appointment Criteria & Standards The debate highlights a shift toward prioritizing functional suitability over just professional credentials: Qualifications: While Chartered Accountants have traditionally held the post, international standards emphasize leadership in public-sector audit and ethical independence. Competencies: Knowledge of public finance systems and parliamentary accountability is deemed critical for a "whole-of-government" perspective. Comparative Practice: Jurisdictions like the UK and Canada emphasize proven leadership in public governance to ensure the office remains insulated from political influence. _Note: This summary is based on professional and constitutional perspectives regarding the current vacancy as of February 2026._
📈 Digital Privacy: Legal Risks of Viral Content in Sri Lanka
A socio-legal review warns that Sri Lanka’s culture of viral sharing is creating a "collective complicity" in privacy violations. With over 8.2 million social media users as of 2025, the rapid spread of non-consensual intimate content poses severe risks to individual dignity and national digital trust. • Legal Framework & Penalties Obscene Publications Act: Criminalizes the production, distribution, and possession of "obscene" material. Every "share" or "forward" is treated as a fresh offense. Personal Data Protection Act (PDPA) No. 9 of 2022: Classifies intimate content as "sensitive personal data." Sharing such data without consent is unlawful, shifting the legal focus from "morality" to "individual harm." Liability: Claiming "I did not create the content" provides no legal immunity for those who distribute it. • Socio-Economic Impact Reputational Harm: Victims face secondary trauma and social ostracism, which is particularly severe in the Sri Lankan context of "family honor." Digital Trust: Continued violations erode trust in digital platforms, potentially hindering the ICT/BPM sector and the growth of the digital economy (which accounted for ~5% of GDP in recent years). Media Ethics: Sensationalism by news outlets for "clicks" exacerbates victim trauma and normalizes voyeurism. • Action Plan for Mitigation Enforcement: Rigorous application of the Penal Code and PDPA to deter offenders. Platform Accountability: Urging rapid takedown procedures and stricter moderation by tech giants. Literacy: National campaigns to educate the public that "sharing" is a punishable crime. _Note: Legal provisions under the PDPA are being implemented in phases through 2026._
Sri Lanka Formalizes Night-Time Employment for Women in Key Service Sectors 📈
A new Gazette notification has been issued by the Ministry of Labour, expanding the legal framework for female employment during night hours. This significant amendment to the Shop and Office Employees Act aims to modernize labor regulations and boost the female labor force participation rate, which currently stands at approximately 30%. • Key Regulatory Changes: Women over the age of 18 are now officially permitted to work as janitorial attendants or food service attendants (stewardesses) between 6:00 p.m. and 6:00 a.m. previously, this privilege was largely restricted to ladies' restroom attendants. • Sector Impact: The move primarily benefits the hospitality, tourism, and facility management sectors by allowing businesses like residential hotels and restaurants to operate more flexibly with a diverse workforce. • Employer Mandates: Strict welfare requirements have been imposed on employers engaging women for night shifts, including: Provision of secure transport facilities to the employee's residence. Ensuring suitable accommodation where necessary. Implementation of mandatory health and safety measures. Full accountability for the overall welfare and protection of female staff. • National Context: This follows previous reforms that opened night work for the ICT/BPM and apparel sectors, reflecting a broader shift toward economic diversification and inclusive growth. _Note: Summary based on provisional data from Gazette Extraordinary issued on Jan 30, 2026._
CBSL Cancels Pan Asia Bank's Primary Dealer Licence ⚖️
• Overall Regulatory Action: The Central Bank of Sri Lanka (CBSL) has officially cancelled the Primary Dealer Licence of Pan Asia Banking Corporation PLC (PABC). While the formal notification was issued on 27 January 2026, the cancellation is retroactively effective from 23 October 2025. • Historical Context: This follows a prolonged suspension period that began on 15 August 2017. The initial suspension was linked to investigations into government bond market transactions involving Perpetual Treasuries Ltd. • Impact on Operations: • Regular Banking: No impact; the bank continues its standard commercial banking operations, including deposits and lending. • Securities Trading: PABC remains active in the secondary market for Government securities. • Primary Auctions: The bank is strictly prohibited from participating in primary auctions for Treasury bills and Treasury bonds. • Current Status: The bank confirms that this cancellation will not disrupt its core financial services or its commitment to the banking sector and national economy. _Source: Based on official bank statements and CBSL regulatory filings._
RTIC Orders Disclosure of $54.8M China Development Bank Loan 📈
The Right to Information Commission (RTIC) has directed the External Affairs Ministry to release the loan agreement for the Katana Water Supply Project, rejecting government claims that confidentiality is required for debt restructuring. • Core Ruling: The RTIC ruled that public interest in transparency regarding essential infrastructure outweighs confidentiality concerns. The government must disclose the agreement by 27 February 2026. • Financial Details: The agreement involves a US$ 54.8 Million loan signed in 2017 between the China Development Bank (CDB) and the National Water Supply and Drainage Board. • Transparency Context: While 8 of 9 requested Chinese loan agreements were previously released, this final document was withheld. The RTIC found the state failed to prove that disclosure would cause economic harm or prejudice foreign relations. • Legal Precedent: The Commission linked the right to information to the right to life, citing water as an essential commodity. It warned of prosecution under Section 39 of the RTI Act for non-compliance.
📱 Govt. to Launch National Assessment on Social Media Impact on Children
The Ministry of Digital Economy, in collaboration with the Ministries of Education and Women & Child Affairs, has announced a national policy review to address the impact of social media on Sri Lankan youth. • Strategic Focus: The initiative aims to balance technological innovation with child safety, moving beyond simple restrictions to evidence-based policy. • Key Risks Identified: The assessment will target cyber bullying, exposure to age-inappropriate content, and the psychological stress impacting sleep, education, and mental health. • Multisectoral Approach: The review will integrate insights from ICT/cyber security, legal, health, and research experts to ensure a safe digital environment. • National Priority: Deputy Minister Eranga Weeraratne emphasized that ensuring online safety is a non-negotiable policy, highlighting the need for a collaborative effort between parents, teachers, and the state.
## 🚭 Sri Lanka Customs Enforces Strict Cigarette Import Ban
• The Directive: Sri Lanka Customs has reiterated a total ban on passengers importing foreign cigarettes. Violators face severe legal penalties as authorities tighten border controls to protect national revenue. • Enforcement Actions: Seizure Volume: 232.804 million foreign-manufactured cigarette sticks were seized over the last four months. Destruction: The entire stock was recently destroyed at the Kerawalapitiya Waste-to-Energy Power Plant under official supervision. • Economic Impact: Valuation: The seized cigarettes were valued at Rs. 305 million. Revenue Protection: The operation prevented an estimated Rs. 271 million loss in tax revenue to the Government. • Key Focus: This move highlights the government's commitment to curbing the illicit tobacco trade, which directly impacts the fiscal health and tax revenue streams essential for the national economy. 📈 ---