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Cryptocurrency Schemes: Committee appointed to look into irregularities

14 Feb 2021

A committee has been appointed by the Central Bank of Sri Lanka (CBSL) to study the prevailing issues regarding the rise of cryptocurrency users and the rise of reported accounts of people being ambushed under cryptocurrency pyramid schemes, The Sunday Morning Business learnt.  Speaking to us, the official who wished to remain anonymous stated that after the study is concluded by the committee appointed, a decision to formulate new regulations or to not with regards to control the prevailing issue will be taken. “We have not issued any regulations at the moment, the decision will depend on the study conducted by the committee”, the official noted.  However, when further questioned regarding the committee, said official did not wish to reveal any information.  We also spoke to another official from the Resolution and Enforcement Department (RED) of CBSL, who also wished to remain anonymous, who said that according to the Banking ACT of CBSL, cryptocurrency is “prohibited”, which would mean that nobody is allowed to participate or promote such activities.  “There are investigations going on, but if people are caught promoting/network marketing in these schemes, they would be apprehended as it is considered as an offence; there have been instances where people have been subjected to rigorous imprisonment and fines,” the official added.  Further, commenting on awareness programs conducted by CBSL, the official noted that due to the prevailing situation in the country such awareness programs were halted: “We usually conduct awareness programs all over the country through our regional officers. However, due to Covid-19, we couldn't organise (these programmes) hence, as an alternative method, we have issued paper notices and advertisements to the general public”. Further, we spoke to the Chairman of Information and Communication Technology Agency of Sri Lanka (ICTA) Prof. Lalith Gamage, who stated that in terms of cryptocurrency, ICTA is developing a new technology named “Blockchain Technology”. “It is a new technology which can open a ledger that could safely and secretly keep records of all transactions, resulting in no dispute. Hence, we are using technologies applying these for safe and secure transitions, between government organisations, between Government and citizens, between Government and businesses and so on in digital platforms,” Gamage said.  While emphasising ICTA’s mandate to provide technology and advice to people, Government, and organisations in Sri Lanka, Gamage said that: “We have digital services which provide consultancy services. If there are any problems with regards to cryptocurrency, then we can provide how to mitigate, monitor or address these issues. We will be also using blockchain technologies to facilitate transactions between parties”.  Further, Gamage also noted that ICTA’s role is to ensure how the Government can be more citizen-centric and also more business-friendly.  We also spoke to the Information Security Engineer of Sri Lanka Computer Emergency Readiness Team (SLCERT) Ravindu Meegasmulla, who stated that CERT strongly believes in increasing the awareness of such schemes and added that citizens should be paranoid of cryptocurrency.  According to Meegasmulla, people in rural areas are more prone to be duped by these schemes as they are in situations of needing money and looking for ways to earn extra: “They are the ones needed for guidance as people in urban areas have a bit more exposure in this topic”.  Giving the concluded remarks, Meegasmulla emphasised that: “Users have to be vigilant about these schemes, there's nothing in life that comes free and nothing in life gives you that kind of an advantage, so it is important to be critical of these activities and be paranoid. Do some research, check whether it's truly there!” On 16 April 2018, CBSL officially released a statement noting that CBSL is prohibiting license or authorisation to any entity or company to operate schemes involving virtual currencies, including cryptocurrencies, and has not authorised any Initial Coin Offerings (ICOs). Explaining the prohibition, CBSL in the statement noted that: “Virtual currencies such as cryptocurrencies use decentralised peer-to-peer digital networks to authorize transactions. Due to the absence of a centralised authority such as a Central Bank to guarantee the value of the currency and regulate transactions, there is no recourse in the event of any user or transaction related issues or disputes. The value of virtual currencies is dependent on speculation and is not backed by an underlying asset or a regulatory framework. Due to this, virtual currencies may demonstrate major volatility. Similarly, there appears to be a high probability of virtual currencies being used in illegal activities. Further, though unintentionally, their usage could amount to breaches of anti-money laundering and combating the financing of terrorism (AML/CFT) laws. Therefore, cryptocurrencies, in the present form, may pose significant risks in terms of financial, operational, legal, customer protection, and security-related risks to their users as well as to the economy”.   


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