New Forex Act ensures clarity and transparency | Sunday Observer

New Forex Act ensures clarity and transparency

 Ms. Pavithri Vithanage   (PIC: SAMANTHA WIJESIRI)
Ms. Pavithri Vithanage (PIC: SAMANTHA WIJESIRI)

‘Unlike the good old days where banks had nothing to explain to the  customer and had directed customers to the Central Bank for  clarification, the bank is now required to ask for documentation to  satisfy themselves and at the same time, if they are not willing to  conduct the transaction, they would have to give reasons for their  decision’

Sri Lanka’s new Foreign Exchange Act (FEA) which came into effect on November 20, 2017 is a forward looking one that ensures greater transparency and clarity, Senior Assistant Director of Legal and Compliance at the Central Bank of Sri Lanka, Ms. Pavithri Vithanage told a forum last week.

Addressing a seminar organised by the Ceylon Chamber of Commerce, Vithanage said the new Act is intended at encouraging businesses, inward investments into Sri Lanka and to remove any ambiguities over foreign exchange dealings. The Act recognises ‘Authorised Dealers’, ‘Restricted Dealers’ and ‘Dealers for a Specific Purpose’ as being permitted to deal in foreign exchange.

“The enhancement of the availability of services has been a key change since previously the Exchange Control Act had only allowed authorized dealers such as licensed commercial banks. The Act has gone one step further by allowing licensed specialized banks while money changers have also been recognized to provide restricted services such as currency exchange,” Vithanage explained at the seminar titled ‘The new forex Act and Regulations – What Does It Mean for Business?’.

Outlining that some may feel that money changers should not have been included, she, however, argued that in reality, money changers played a key role especially around tourist destinations in the island.

“If you visit a tourist-dense area like down south on a Sunday evening, all the bank branches are closed. So somebody should be there to provide currency exchange services to tourists and enhance their convenience,” she pointed out.

Thus, Vithanage said that the move would improve competition thereby benefiting citizens while the banks would be expected to do their jobs properly since they will now be in a competitive environment with more people coming in.

Empowering banks

The new law also allows any capital or current transaction to be undertaken by banks if the requirements for conducting the capital or current transaction could be fulfilled. It also empowers banks with the right to ask for information from customers.

“Unlike the good old days where banks had nothing to explain to the customer and had directed customers to the Central Bank for clarification, the bank is now required to ask for documentation to satisfy themselves and at the same time, if they are not willing to conduct the transaction, they would have to give reasons for their decision,” Vithanage said.

Therefore, she highlighted that rather than blindly turning a customer away, the bankers are given more opportunity to do business since they would now be the contact point.

She, however, advocated that banks will have to avoid committing the offence of ‘tipping off’ under the Financial Transaction Reporting Act when providing reasons.

“From here on, nobody is expected to come to the Central Bank even to get a clarification whether a transaction could be done or not,” the official said.

Simplifying number of accounts

On the other hand, Vithanage explained that the new Act has reduced the number of accounts from a total of 18 accounts previously to just 5 accounts providing much needed clarity and simplification to businesses.

Accordingly, the New Act has introduced a Personal Foreign Currency Account (PFEA) and Business Foreign Currency Account (BFCA). For those who had previously opened four accounts namely, Non–Resident Foreign Currency Account (NRFC) and Resident Foreign Currency Account (RFC), Resident Non-National Foreign Currency Account and Tourist Account (Non Resident Non-National Foreign Currency Account), the accounts would get re-designated as PFEA.

On the other hand, persons who had held the Foreign Exchange Account or Inward Remittances Distribution Account (IRDA) and Foreign Currency Account for Airline and Shipping Agents (FCASA), these would now be re-designated as BFCA.

Another key change in the Act is the introduction of the Inward Investment Account (IIA) and the Capital Transaction Rupee Account (CTRA). An IIA account would comprise the previously named Securities Investment Account and Special Foreign Investment Deposit Accounts (SFIDA) while the CTRA comprises of Non Resident Rupee Account, Non Resident Blocked Account and the Migrant Blocked Account, Vithanage explained.


The Central Bank official further said that the new Act has removed ambiguity in figuring out who is a resident of Sri Lanka and who is not by providing a clear definition.

Under the previous Exchange Control Act, the definition of a person resident in Sri Lanka had ambiguity, experts said.

“The new Act considers anyone who has been resident in Sri Lanka for 183 days or more in a calendar year while any person who temporarily leaves Sri Lanka for not more than 183 days is also considered to be resident. The exception to that rule is someone who leaves Sri Lanka to undertake studies as a student who will still be considered a resident during the period of studies. Other exceptions include Sri Lankan Diplomats, Consuls, Members of Statutory Boards etc. provided they are not recruited locally in that country,” Vithanage explained.

No restrictions to bring money

Meanwhile, she said that there is no restriction on the value of money that can be brought into Sri Lanka and only a declaration is required. The declaration requirement under the new Act has been enhanced to US$ 15,000.

“A declaration is not a restriction and we encourage people to bring money into Sri Lanka for development purposes.

However, if a person is bringing foreign currency to Sri Lanka in cash, draft or cheque and is going to take back foreign currency out of Sri Lanka which exceeds US$ 10,000, in that scenario also, they will have to declare,” Vithanage explained.

She elaborated that Sri Lankan currency up to a value of Rs. 20,000 also can be taken out of Sri Lanka and be brought in without the need for declaration.

“One of the questions asked is what can you do with Rs. 20,000 and why not increase this limit.

The rationale to allow people to take out and bring Rupees in to the country is that when you come back to Sri Lanka at your arrival, if you didn’t have Sri Lankan Rupees with you, you would be forced to encash the foreign currency to get a cab or get some food etc.

That is the logic under which this Rs. 20,000 is allowed,” she said.

Time limit

Addressing the question of how much and how long one could retain foreign currency, Vithanage said although a general perception exists that US$10,000 can be retained by anybody, it can only be retained without a time limit if one had obtained it as travel allowance from an authorized dealer.

On the other hand, she said that payments received from overseas for goods and services through the Personal/Business Foreign Currency Account can be retained upto a limit of US$ 10,000 without being subjected to a time limit.

“The Central Bank allows the business community in Sri Lanka to provide goods and services to non residents such as tourists and earn their income in foreign currency.

Before we gave this permission in 2013, individuals had to come to Central Bank’s Exchange Control Department to obtain a permit to accept foreign currency.

“Long gone are the days like that and now anyone who provides goods and services to non residents can accept foreign currency provided that those foreign currencies are either encashed or banked within seven days,” Vithanage pointed out.