Since the financial crisis, regulatory frameworks and principles have become increasingly essential. Massive sums of money have been poured into the regulation of financial markets, but with little to show for it. This implies that there should be no regulation of financial markets. Measures that limit the likelihood of new problems in the global financial markets offer important societal advantages, and adequate sector regulation is essential, particularly from an economic standpoint.
Various authorities of the federal and state governments control and supervise financial markets and enterprises. As a result of their distinct roles and responsibilities, each of these agencies can operate independently of the others while pursuing comparable goals.
The efficiency, usefulness, and even need of some of these organizations is contested, but they were all created with particular purposes in mind and will likely be there for a long while to come, regardless of what people think. Finding the proper degree of regulation and the most efficient manner for firms to execute them are the main obstacles. Complications, depending on the data of Forex brokers in Asia, include a growing regulatory environment, an array of tools and goods, new business models and participants, as well as digitalization. Not only is uniform regulation important, but it must also be accompanied by a simpler set of regulations that define clear limits and are easy to put in place. While some are already debating “over-compliance,” others are certainly searching for loopholes to take advantage of the situation.
This means improving the regulatory standard-setting process to keep up with the speed of change and prevent stifling innovation. Rules must comprehend the financial industry and all its technologies, engage in discussion with the many stakeholders, and evaluate and adapt new regulations as needed. Laws that are not up-to-date when they take effect will be adopted. Because of the fast development of new technologies such as blockchain, which has led to new business models, legislators are under increasing pressure to keep up.
As a result, of a “one size fits all” mentality, many institutions are being pushed to their limits, which explains the increasing talk on relief for smaller banks, notably in Germany and England. The talk focuses on capital requirements, and regulators and banks need to examine alternative approaches in this regard. When it comes to legislation and technology, this is most evident in post-trading, where jointly supplying the required services may significantly decrease costs. A positive example of regulation is the regulatory reporting system in Austria which is operated by a service firm for the majority of banks and is used for the reporting process. Because of this, banks may be certain that future requirements of the Austrian National Bank will be met at a considerably cheaper cost than if they were doing it themselves. A similar strategy might be attractive and viable for other areas. For this success story to happen, it was necessary to create a relevant structure that served the interests of all parties involved.
Regulatory Framework and Sri Lanka
In order to ensure the stability and integrity of the financial system, financial institutions are subject to specific rules, limitations, and standards. Either a government agency or a non-government group may be in charge of this. This increased range of financial products made possible by financial regulation has also had an impact on the banking sector’s structure.
Banks in Sri Lanka are regulated by the Banking Act and require authorization from the Monetary Board before they may be founded. There is no difference between international banks and local banks when it comes to the services they provide. Commercial banks (LCBs) and specialized (or savings or deposit) banks are both granted licenses.
Bancorporation or branches of foreign banks incorporated under the Companies Act are the only options for banks.
Based on criteria defined by the Basel Committee for Banking Supervision, the Banking Supervision Department of the Central Bank of Sri Lanka (CBSL) supervises banks. Capital, leverage, and liquidity rules from Basel III are now in effect.
According to the Internal Supervisory Rating system of banks, banks are categorized into different categories. As a result, both quantitative and qualitative criteria are taken into account (e.g. Capital Adequacy, Asset Quality, Management, Earnings, and Liquidity, or CAMEL model components).
Following recent efforts by the Financial Intelligence Unit of the CBSL to prevent financial fraud, Sri Lanka was removed from the Financial Action Task Force’s (FATF) Grey List and is no longer under FATF’s watchlisting.
In addition to that, digital banking, banking transactions, and other kinds of cashless transactions have been adopted by Sri Lankan banks in the last few years.
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