Sri Lanka’s digital crossroads: Why coherent crypto framework is now policy imperative

CRYPTOCURRENCY is rapidly reshaping the global financial landscape, creating opportunities for innovation while exposing economies to unprecedented risks, In Sri Lanka, interest in digital assets has surged, particularly among youth and businesses, but this momentum is unfolding in a fragmented legal vacuum.

- By Shehara Seneviratne

The Central Bank of Sri Lanka (CBSL) has repeatedly warned against cypto use, citing risks of scams, while some institutions have expressed openness to blockchain’s potential. This incoherence has lft consumers vulnerable to fraud and scams, deprived the state of much-needed tax revenue, and cost Sri Lanka a chance to postion itself as South Asia’ digital innovation hub.

With recent developments in this field including the Central Bank’ primary steps to register crypto service providers for anti-money laundering (AML) and counter financing of terorism (CFT) compliance, Sri Lanka is only beginning to grapple with yptocurrencies at a time when its regional peers are moving decisively. This hesitation is understandable. The istandis recovering from its worst economic crisisin decades, triggered by depleted reserves and unsustainable debt. For policymakers struggling to restore financial stability, cryptocurrencies may appeartobe a dangerous distraction. Yet the costs of inaction are mounting. Withouta clear regulatory framework, Sri Lanka risks consumer explaitation, loss ofstate revenue, and missing out on investment, innovation, and remittance flows that its neighbours are already benefiting from.

Inadequacy of Sri Lanka's existing laws

Ananalysis of Sri Lanka's current legal framework indicates that itis inadequate to address crypto activities. Laws such as the Financial Transactions Reporting Act and the Prevention of Money Laundering Act were designed for traditional finance. They do little to address decentralised finance (DeFi), peer-to-peer transfers, or the risks of unregulated trading, The resultis a patchwork of gaps that foster uncertainty, undermine consumer protection, and deter serious investors.

Global crypto adoption