## 📈 Port City Banking Amendments Risk 'Shadow Banking' System

Opposition MP Faiszer Musthapha has warned Parliament that proposed amendments to the Colombo Port City Economic Commission Act could destabilize Sri Lanka’s domestic economy and weaken financial regulation. • Regulatory Shift: The Bill allows the Port City Commission to issue offshore banking licenses independently of the Banking Act. Musthapha argued this creates a "shadow banking system" by shifting oversight away from the Central Bank's established expertise. • Financial Risks: Provisions allowing offshore banks to borrow foreign currency from domestic banks could strain national foreign exchange reserves. Furthermore, the lower capital requirement for offshore banks ($15 Mn) vs. domestic banks ($60 Mn) creates an uneven playing field. • Labor & Brain Drain: The removal of income tax exemptions for Sri Lankan residents employed in the Port City—amid already high personal tax rates—is expected to worsen the migration of skilled professionals. • Key Concerns: Systemic Risk: Parallel licensing frameworks may bypass stringent domestic safeguards. Regulatory Standards: Strict adherence to vague "international standards" (like Basel norms) could strip the Central Bank of the discretion needed to protect national interests. Investment Bottlenecks: Lack of statutory timelines for approvals hinders ICT/BPM and other high-value investments. The MP urged the Government to maintain the Central Bank as the primary regulator to prevent a "dangerous" decoupling of Port City operations from the national banking system.