Monetary Law (Amendment) Act 2002

This Act may be cited as the Monetary Law

(Amendment) Act, No. 32 of 2002.

Section 5 of the Monetary Law Act (hereinafter referred to as the “principal enactment”) is hereby repealed and the following section substituted therefor :—

5. An institution, which shall be called and known as the Central Bank of Sri Lanka

(hereinafter referred to as “the Central Bank”)

is hereby established as the authority responsible for the administration, supervision and regulation of the monetary, financial and payments system of Sri Lanka, and without prejudice to the other provisions of this Act, the

Central Bank is hereby charged with the duty of securing, so far as possible by action authorised by this Act, the following objectives, namely—

economic and price stability ; and

financial system stability, with a view to encouraging and promoting the development of the productive resources of

Section 8 of the principal enactment is hereby amended as follows :—

by the repeal of subsection (1) thereof, and substitution therefor, of the following subsection :—

by the insertion, immediately after subsection (1) of that section of the following new subsection :—

by the repeal of paragraph (c) of subsection (2) of that section and substitution therefor of the following paragraph :—

Section 11 of the principal enactment is hereby amended as follows :—

in paragraph (a) of subsection (1) of that section, by the substitution for the words “any local authority”

in paragraph (a) of subsection (2) of that section, by the substitution for the words “any local authority”

by the repeal of paragraph (c) of subsection (2) of that section and substitution therefor, of the following paragraphs :—

Section 13 of the principal enactment is hereby amended as follows :—

in subsection (1) of that section by the substitution for all the words from “The term of office” to “shall”, of the following :—

in subsection (2) of that section by the substitution for the words “by the appointed member” of the words “by an appointed member”.

Section 14 of the principal enactment is hereby amended in subsection (1) of that section by the substitution for the words “The appointed member”, of the words “An appointed member”.

Section 15 of the principal enactment is hereby amended as follows :—

in subsection (1) of that section by the substitution for the words “Where the appointed member”, of the words “Where an appointed member”;

in subsection (3) of that section by the substitution for the words “to be the appointed member”, of the words “to be an appointed member.”.

Section 16 of the principal enactment is hereby amended by the substitution for the words “or the appointed member” of the words “or an appointed member”.

Section 17 of the principal enactment is hereby amended as follows :—

in subsection (3) of that section by the substitution for the words “two members” of the words “three members”;

in subsection (4) of that section—

Section 30 of the principal enactment is hereby amended by the insertion immediately after subsection (9) of that section, the following subsection :—

‘(10) (a) Where an order has been made by the Monetary

Board under subsection (1) of section 76M of the Banking

Act, No. 30 of 1988 (hereinafter referred to as the “Banking

Act”) in respect of a licensed specialised bank, the provisions of subsections (3), (4), (5), (6), (7), (8) and (9) of this section shall, notwithstanding subsections (3) and (4), of section 76M of the Banking Act and subject to paragraph (ii) of this subsection, apply, mutatis mutandis, to such bank as if it were a banking institution.

Where under paragraph (i) of this subsection, the application of the provisions of subsection (3) of this section requires—

the winding up of a licensed specialised bank, the

the resumption of business of a licensed specialised bank, the Monetary Board may exercise the powers conferred on it under section 76N of the Banking

In this subsection “licensed specialised bank” shall have the same meaning as in the Banking Act.’.

Section 31 of the principal enactment is hereby repealed and the following section substituted therefor :—

31. Where an order is made by the Monetary

Board under section 30 requiring the winding up of a banking institution—

in the case of a commercial bank, the

in the case of any other banking institution, not being a licensed specialised bank to which subsection (10) of section 30 is applicable, the

Section 34 of the principal enactment is hereby repealed and the following section substituted therefor :—

34. The Central Bank shall publish a general balance sheet showing the volume and composition of its assets and liabilities as at the last day of each month before the last day of the succeeding month.”.

Section 62 of the principal enactment is hereby repealed and the following section substituted therefor :—

62. For the purposes of this Act, the expression “the money supply” means all currency, demand deposits, time and savings deposits and such other financial assets as may be prescribed by the Monetary Board from time

“Monthly statement.

‘Expression of the definition of the money supply.

to time and are owned by persons other than the

Government, commercial banks and such financial institutions or categories of financial institutions as may be prescribed by the

Monetary Board and for the purposes of this section “financial institutions” shall have the same meaning assigned to it in subsection (5)

of section 93.”.

The principal enactment is hereby amended by the insertion immediately after section 62, of the following :—

‘PART III

PAYMENT AND SETTLEMENT SYSTEMS

62A. (1) The Central Bank may establish and operate one or more systems—

for the transfer of funds by and between the Central Bank, commercial banks and such other institutions or persons that maintain a settlement account with the

for the transfer and settlement of scripless securities by and between the Central Bank and direct participants ;

for the settlement of payment obligations in respect of transfer and settlement of scripless securities under paragraph (b).

A system established under subsection (1) may be linked to another system in Sri Lanka or elsewhere for the clearing or settlement of payment obligations or securities.

The Central Bank may enter into agreements with the participants of a system established under subsection (1) and issue in writing to the participants of the system rules for the operation of the system.

Without prejudice to the generality of subsection (3), such rules may provide—

for the provision of intra-day credit against the collateral of securities to the participants and the conditions attaching to the provision of such credit ;

for the appointment of the Central Bank as a certification authority for the purpose of issuing certificates to participants under any law applicable to the appointment of certification authorities in respect of electronic signatures ;

for the formulation and adoption of a code of conduct for participants ;

for the authentication of transactions carried out electronically ;

for the Central Bank, if it considers necessary in the interest of the system, to cease or suspend the operation of the system, or to withdraw or suspend the privileges or rights of any participant or category of participants or to suspend or revoke the membership in the system of a participant ;

for the appointment of auditors or inspectors for the auditing or inspection of the operating systems of participants in respect of the settlement system ; and

for the payment of charges and fees to the Central Bank by the participants.

A payment or transfer made through a system established under subsection (1), is final and irrevocable—

in the case of a transaction involving a funds transfer only, upon the settlement account of the participant requesting the funds transfer being debited ;

in the case of a transaction involving a securities transfer only, upon the securities account of the participant requesting the securities transfer being debited ;

in the case of a transaction involving both, a funds transfer and a securities transfer, upon debiting the settlement account or the securities account of a participant requesting the funds transfer or the securities transfer as the case may be, whichever occurs earlier, and notwithstanding anything to the contrary in any other law, such payment or transfer shall not be required to be reversed, repaid or set aside nor shall any court, order such payment or transfer to be rectified or stayed.

Scripless securities issued under this Act or the Local Treasury Bills Ordinance or the

Nothing in subsections (5) and (6) shall affect any other legal right or remedy available to a person who has suffered any loss or damage by a payment, transfer or settlement effected through a system established under subsection (1).

Notwithstanding the provisions of any written law relating to the winding up of companies, if proceedings for the winding up of a participant of a system have commenced—

the Central Bank may do anything permitted or required by the rules of the system in order to net obligations incurred before or on the day on which the proceedings commenced ;

the obligations that are netted under the rules of the system shall be disregarded in the proceedings ; and

the netting made by the Central Bank and any payment made by the participant under the rules of the system shall not be voidable in the proceedings.

If proceedings for the winding up of a participant is commenced and a payment or settlement owed by such participant has been made as referred to in subsection (5) or (8), and if a payment or settlement of such funds or securities would have been void or voidable under any other written law if made outside the system, the liquidator of such participant may recover from the person to whose benefit such payment or settlement was made such amount as would have been recoverable if such payment or settlement had been made outside the system.

Without prejudice to the generality of the provisions of section 47, the Monetary

Where any transaction effected through a system established under subsection (1) is carried out electronically, such transaction shall not be denied legal effect, validity or enforceability solely on the ground that such transaction is carried out electronically or that the information relating to such transaction is maintained in the form of an electronic record, and such record may be tendered in evidence in proceedings before any court or tribunal in accordance with the provisions of Parts II and

Any or all of the functions referred to in subsection (1) may, be carried out by a body corporate authorised for the purpose by the

For the purposes of this section—

Section 72 of the principal enactment is hereby amended as follows :—

by the deletion of subsection (2) thereof and by renumbering subsection (1) as section 72 ; and

in the renumbered section 72, by the substitution for the words “the Central Bank shall buy” of the words

Section 74 of the principal enactment is hereby amended by the repeal of subsection (5) of that section.

Section 76 of the principal enactment is hereby amended by the repeal of subsection (4) of that section.

Section 76A of the principal enactment is hereby repealed and the following section substituted therefor :—

76A. (1) Where the Governor is of opinion that it is inexpedient to determine and certify, in accordance with the provisions of section 73, the parities with respect to the Sri Lanka Rupee of foreign currencies ordinarily required for the international transactions of Sri Lanka, the

Governor—

may desist from determining and certifying the parities of such foreign currencies under that section ;

may or may not determine the rates at which the Central Bank may buy and sell foreign exchange in spot or other transactions.

Where the Governor acts in terms of subsection (1), the provisions of sections 73, 74

Where the Governor determines, under paragraph (b) of subsection (1) the rates at which the Central Bank may buy and sell foreign exchange in spot or other transactions, the following provisions shall apply determination—

such determination may be limited to such foreign currencies as the Governor may deem appropriate ;

the rates determined under paragraph (b)

the Central Bank shall not accept any commission or impose any charge of any description in respect of the purchase or sale of foreign exchange, except the telegraphic or other costs actually incurred in connection with such purchase or sale ;

it shall be competent for the Governor to authorise, in writing, any officer by name or by office, to vary from time to time within such limits as may be specified by the Governor, the rates determined by the Governor under paragraph (b) of subsection (1) ;

where the Governor makes a determination under paragraph (b) of subsection (1) with respect to foreign currency but makes no determination under that subsection with respect to any particular foreign currency, the Central

Where the Governor desists from determining and certifying parities under subsection (1) (a) and does not determine the rates at which the Central Bank may buy and sell foreign exchange in spot or other transactions under paragraph (b) of subsection (1) the Central

(a) Where the Governor determines under subsection (1) (b) the rates at which the Central

Notwithstanding that the Governor has desisted from determining and certifying parities under subsection (1) (a) and has not determined the rates at which the Central Bank may buy or sell foreign exchange under paragraph (b) of subsection (1) the Governor may determine the minimum rate at which any commercial bank may buy spot foreign exchange and the maximum rate at which any commercial bank may sell spot foreign exchange.

The provisions of paragraph (d) of subsection (3) shall, mutatis mutandis, apply to and in relation to, the minimum and maximum rates determined under paragraph (a) or paragraph (b) of this subsection.

Where no determination is made under paragraph (a) or paragraph (b) of this subsection, a commercial bank may buy, sell or carry out any transaction in foreign currency at rates calculated on the basis of the exchange rates for that currency in the international markets.

Where a determination is made under paragraph (a) or paragraph (b) of this subsection as to the minimum and the maximum rates at which commercial banks may buy and sell spot foreign exchange—

no commercial bank shall buy spot foreign exchange at any rate below the minimum rate determined under those paragraphs as may be applicable or sell spot foreign exchange at any rate exceeding the maximum rate so determined as may be applicable ; and no commercial bank shall in respect of the purchase or sale of such exchange accept any commission or impose any charge of any description except telegraphic or other costs actually incurred in connection with such purchase or sale ; and

no commercial bank shall carry out any transaction in foreign exchange, not being a spot transaction, at any rate which differs from the rates determined under paragraph (a) or paragraph (b) of this subsection as may be applicable by a margin greater than is reasonable having regard to the additional costs, expenses or risks of the transaction, or by such margin, if any, as may be prescribed in that behalf by the

The heading appearing in Part VI immediately before section 93 of the principal enactment is hereby repealed and the following heading substituted therefor :–

“REGULATION OF THE RESERVES OF COMMERCIAL BANKS AND

PRESCRIBED FINANCIAL INSTITUTIONS”.

Section 93 of the principal enactment is hereby repealed and the following section substituted therefor:–

93. (1) The Monetary Board shall, in order to limit the volume of money created by the credit operations of the financial system, require commercial banks and such other financial institutions operating in Sri Lanka as may be prescribed by the Monetary Board (in this Part referred to as the “prescribed financial institutions”) to maintain reserves against their deposit liabilities and such of their other financial liabilities as the Monetary Board may consider necessary and shall, for that purpose, prescribe the classes of deposit liabilities and the categories of other financial liabilities against which reserves are required to be maintained.

‘Reserve requirements.

The reserves required to be maintained by a commercial bank or a prescribed financial institution under subsection (1), shall be proportionate to the volumes respectively, of each class of its deposit liabilities and each category of its other financial liabilities and shall, subject to subsection (4), take the form of rupee deposits in the Central Bank.

The accounts maintained at the Central

The Monetary Board may in the interest of the national economy and the banking and financial systems of the country, permit the maintenance of any part of the reserves required to be maintained under subsection (1), in the form of assets other than rupee deposits in the

In this Part –

Section 94 of the principal enactment is hereby repealed and the following section substituted therefor :–

94. (1) The Monetary Board shall prescribe, and may, from time to time, vary, the reserve ratios applicable to each class of deposit liabilities and each category or other financial liabilities against which reserves are required to be maintained under section 93.

Any increase in a reserve ratio which is to be applicable in respect of any liability that existed on the date of the increase shall be made by the Monetary Board in a gradual manner and shall not exceed four percentage points in any one period of thirty days.

The Monetary Board shall, other than in exceptional circumstances, endeavour to give commercial banks and other prescribed financial institutions not less than fourteen days notice of the date on which any increase in a reserve ratio is to become effective.”.

Section 95 of the principal enactment is hereby repealed and the following section substitued therefor :–

95. Where any commercial bank or any prescribed financial institution is required to maintain a reserve against any class of deposit liabilities or any category of other financial liabilities, the Central Bank shall, if so determined by the Monetary Board, in the interest of the national economy and the banking and financial systems of the country, pay to that bank or to that financial institution, as the case may be, interest at such rate as may be determined by the Monetary Board, on the amount maintained as a reserve or a part thereof.”.

Section 96 of the principal enactment is hereby repealed and the following section substituted therefor :–

96. (1) The reserves required to be maintained by a commercial bank or a prescribed financial institution shall be calculated on such basis as may be prescribed by the Monetary Board.

For the purposes of subsection (1), the principal office in Sri Lanka of a commercial bank or a prescribed financial institution and the respective branches and agencies of such bank or financial institution shall be deemed to be one unit. ”.