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Legal and Regulatory Matters

Acceptance of Deposits

Instructions issued on 8 Oct 2008- Use of banking system by institutions and persons not authorized to accept deposits All licensed banks are advised to pay special attention to strengthen the Customer Due Diligence and know your customer procedures in order to avoid the use of banking system by the institutions and persons not authorized to accept deposits

Margin requirements for Letters of Credit (Vehicles)

Circular no. 35/01/005/0010/07 of 31 Oct 2008

Commercial Banks were informed that the margin requirements against the letters of credit for the importation of vehicles imposed by the circular no 35/01/005/0010/01 are increased from 100% to 200% with immediate effect.

Instructions issued on 07 Nov 2008- Imports of Motor vehicles on DA terms

All LCB were requested to adhere to the following requirements on the importation of motor vehicles or related items given in the schedule A on DA terms with immediate effect

  • A 200% margin deposit on the invoiced value which are imported under DA term should be placed by the importer at the time of release of documents and acceptance of bills by the importer
  • A 200% margin requirement is on the total value of the invoice, even if the same invoice includes items which are not subject to margin requirement
  • Bank should endorse the invoice to effect that margin deposit had been obtained
  • Margin deposit should release on the production of documentary evident
  • Bank should not grant any advance to enable importers to place the margin deposit
  • Margin deposit will be subjected to statutory reserve requirement
  • The bank may pay interest on such margin deposits
  • The bank should submit monthly returns on the details of margin deposit to the CBSL

Bonus interest for NRFC and RFC Accounts

Directions to Authorised Dealers on 27 Jan 2009

Authorized dealers were informed that in order to promote inward remittance, GOSL will pay a bonus interest in Sri Lanka rupees that is equal to 20% of the foreign currency interest paid by the authorized dealers on RFC and NRFC accounts w.e.f 1 Feb 2009 subject to the conditions cited on the circular

Relief Package to the Tea Sector proposed by Ministry of Finance and Planning

In terms of the Cabinet decision dated 7th January, 2009, it has been decided to implement a concessionary loan scheme on a short-term basis for registered tea factory owners with a view to enabling them to meet their obligations to tea small holders on account of green leaf supplied to them. Towards this objective, the Sri Lanka Tea Board will identify the registered tea factory owners who will qualify for consideration by banks for such assistance. Lending institutions are required to obtain specific recommendation from the Sri Lanka Tea Board confirming the eligibility of the borrower for the loan facility.

02. In terms of the said Cabinet decision, the Government will provide 100 percent Treasury Guarantee to lending banks to facilitate the disbursement of the loan subject to the following conditions.

  1. Quantum of Loan

One month working capital requirement based on the turnover in October 2008 to registered tea factory owners. Loan would be available to the individual registered operational tea factories only. Applications may be forwarded to relevant bank through the Sri Lanka Tea Board.

  1. Interest Rate

To be determined by the bank based on customer/ bank relationship. The Government will provide interest subsidy of 6 percent through the Tea Stabilization Fund setup under the chairmanship of the Director, Economic Research of the Central Bank of Sri Lanka.

  1. Repayment Period

Within a maximum period of 2 years commencing from the first auction after obtaining the loan as a first charge on sales proceeds.

  1. Security

Existing mortgages or any other security available with the respective bank in respect of the factories to be extended to cover these loans.

Guidelines pertaining to implementation of the scheme is to be issued by the Sri Lanka Tea Board in consultation with the Ministry of Plantation Industries.

Directions issued by the Dept. of Exchange Control, Central Bank of Sri Lanka

  1. Directions to the Authorized Dealers on 02 July 2008- Sale of foreign exchange to Emigrants 

Authorized dealers are granted permission to sell foreign exchange for outward remittance to emigrants up to a maximum value equivalent to US $ 150,000 per family or per individual not accompanying a family at the time of departure subject to the conditions cited.

  1. Directions to the Authorized dealers on 02 June 2008- Foreign Investment Deposit Accounts(FIDA)

Permission is granted to accept investments in deposits from persons resident outside Sri Lanka (Foreign citizens, Sri Lankans resident outside Sri Lanka,Corporate bodies incorporated outside Sri Lanka and foreign institutional investors) under the procedures given in the Directions. Minimum account balance to be maintained is US $ 10, 000 or equivalent in other designated foreign currency or Sri Lankan rupees and total liabilities on FIDAs of an authorized dealer should not exceed 20% of total liabilities of its Domestic Banking Unit (DBU). 

 

  1. Directions to the Authorized dealers on 02 July 2008- Non Resident Blocked Accounts

Authorized dealers are granted permission for outward remittance of the total balance standing to the credit of existing non resident blocked accounts as at 1 July 2008 to the account holders or their legitimate beneficiaries subject to the conditions cited on the Directions.

Anti Money Laundering and Anti Terrorist Financing Legislation

The following Acts have been passed in connection with the above.

- PREVENTION OF MONEY LAUNDERING ACT NO.5 OF 2006.

This Act prohibits Money Laundering in Sri Lanka and provides for the necessary measures to combat and prevent Money Laundering. The Act also specifies the offences under the Law, the duty to disclose information, punishment for offences etc.

-  CONVENTION ON THE SUPPRESSION OF TERRORIST FINANCING ACT NO.25 OF 2005.

As a signatory to the International Convention on the Suppression of Terrorist Financing this legislative provision gives effect to Sri Lanka’s obligations under the above Convention. The Act specifies the offence of terrorist financing, the punishment for such offences etc.

FINANCIAL TRANSACTIONS REPORTING ACT NO.6 OF 2006.

The Act provides for the collection of data relating to suspicious financial transactions to facilitate the prevention, detection, investigation and prosecution of the offences of Money Laundering and the Financing of Terrorism. It also requires certain institutions to undertake due diligence measures and follow Know Your Customer concepts to combat Money Laundering and the Financing of Terrorism. The Act also provides for the setting up of a Financial Intelligence Unit to regulate the compliance of the Act.

Withholding Tax on interest

Regulations pertaining to recovery of Withholding Tax on interest paid by Banks and other Financial Institutions were revised under Section 133 of the Inland Revenue Act No.10 of 2006 as amended. Details are provided under ‘Matters of Public Interest”


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