Page 16 - QUALITY MAGAZINE_Volume 02 (Issue II)_Web Ready File (1)

QUALIT Y JANUARY 2024

Significant Changes to the Regulatory
Operations 6. Cross-Border Regulations: In conclusion, while fintech innovations offer numerous
The regulatory environment around banking activities Fintech often operates across borders, presenting benefits such as efficiency gains and enhanced financial
inclusion, they also pose challenges to traditional banking
has seen substantial changes as a result of fintech, challenges for regulatory harmonization and cooperation. liquidity positions. Banks in Sri Lanka and globally must
especially in Sri Lanka. This is how fintech affects the Sri Lanka’s regulators may need to collaborate with adapt by embracing technological advancements
regulatory framework of banking operations. international counterparts to address jurisdictional while carefully managing risks and complying with
issues and ensure consistent regulatory standards, evolving regulatory requirements to maintain robust
1. Regulatory Framework Evolution: particularly concerning cross-border payments and liquidity positions. Banks should proactively resolve
Fintech innovations often outpace existing regulatory remittances. their barriers by educating customers, developing
frameworks designed for traditional banking operations. 7. Promoting Innovation and Competition: customized products, and creating a seamless user
Regulators in Sri Lanka and elsewhere need to adapt interface. Balancing innovation with prudent liquidity
swiftly to ensure that fintech activities are appropriately While ensuring compliance and consumer protection, management strategies will be critical for banks to thrive
supervised and consumer protection is maintained. This regulators also aim to foster a competitive and in an increasingly digital financial ecosystem.
evolution may involve updating regulations related to innovative financial services sector. Sri Lanka’s regulators Given regulatory concerns, fintech’s influence on the
digital payments, cybersecurity, data protection, and may introduce policies to encourage fintech adoption, regulatory aspect of banking operations in Sri Lanka is
customer authentication. support startup ecosystems, and facilitate partnerships
between banks and fintech firms to promote financial profound. It necessitates a balance between fostering
2. Regulatory Sandboxes: inclusion and economic growth. innovation, protecting consumers, and maintaining
To foster innovation while managing risks, regulators in financial stability. Regulators play a crucial role in
adapting and evolving regulatory frameworks to address
Sri Lanka have introduced regulatory sandboxes. These the challenges and opportunities presented by fintech,
are controlled environments where fintech firms can test ensuring that the financial system remains secure.
new products and services under regulatory supervision.
It allows regulators to observe how new technologies
interact with existing regulations and assess potential
risks before broader deployment.

3. Consumer Protection and Data Privacy:
Fintech often involves handling vast amounts of sensitive
customer data. Regulators are increasingly focused on
ensuring robust data protection measures are in place
to safeguard consumer privacy. In Sri Lanka, regulatory
frameworks may require fintech companies to comply
with specific data protection laws and guidelines,
influencing how banks and fintech firms handle customer
information.

4. Anti-Money Laundering (AML) and Counter-Terrorist
Financing (CTF) Compliance:
Fintech innovations, particularly in digital payments
and cryptocurrencies, pose challenges for AML and CTF
efforts. Regulators in Sri Lanka are tasked with ensuring
that fintech solutions have adequate mechanisms to
detect and prevent financial crimes. This may involve
implementing stricter Know Your Customer (KYC)
procedures and transaction monitoring systems.

5. Capital Adequacy and Risk Management:
Regulatory requirements such as capital adequacy
ratios and risk management frameworks apply to banks
and increasingly to fintech firms offering banking-
like services. Regulators in Sri Lanka may impose
specific capital requirements or risk controls on fintech
companies to ensure financial stability and mitigate
systemic risks arising from their activities.

Department of Industrial Quality Management
Department of Industrial Quality Management
14 Department of Industrial Quality Management Department of Industrial Quality Management 15
General Sir John Kotelawala Defence University General Sir John Kotelawala Defence University