• Aims to ensure domestic regulatory oversight

The Government is preparing to introduce a comprehensive legal and regulatory framework specifically targeting virtual assets, including cryptocurrencies and stablecoins, according to the Ministry of Digital Economy.

This initiative aims to address the significant legal vacuum that currently exists within the digital financial sector, which has increasingly left citizens vulnerable to sophisticated online scams and financial fraud.

As the adoption of decentralised digital currencies grows globally, local authorities have recognised the urgent need to establish oversight mechanisms to protect consumers and maintain the integrity of the national financial system.

Currently, transactions involving virtual assets operate without formalised monitoring or regulatory compliance in Sri Lanka. This lack of oversight has created an environment susceptible to illicit activities.

Deputy Minister of Digital Economy Eranga Weeraratne detailed the Government’s strategic response to this growing challenge and outlined the foundational steps of the upcoming legislation.

“We are going to introduce a regulatory framework for virtual assets. Currently, virtual assets such as cryptocurrencies and stablecoins lack a proper legal structure. Due to this absence of a legal framework, there is no monitoring or regulation, which has led to a lot of scamming and various wrongful activities. 

“Therefore, we will introduce a legal framework to first identify and register all virtual asset service providers in the country. Thereafter, the framework will identify virtual assets as a distinct class and establish regulations on how they should operate,” Weeraratne told The Sunday Morning.

The proposed legislation is said to systematically classify virtual assets and establish clear operational guidelines for entities providing services related to these digital currencies. A primary focus of the framework will be the mandatory registration of all virtual asset service providers operating within the country. 

By mandating registration, the Government intends to bring these entities under the purview of national financial authorities, thereby ensuring accountability and transparency in their operations, it is learnt.

Furthermore, it is important to distinguish this upcoming virtual asset legislation from other ongoing digital security reforms. The Government is concurrently advancing a separate Cyber Security Bill; however, the regulation of digital currencies requires a distinct approach tailored to financial compliance rather than purely technical network defence. Weeraratne clarified the operational boundaries between these two distinct legislative efforts.

“It is a different initiative. The Cyber Security Bill focuses on the security aspect. The virtual asset framework is designed specifically to identify virtual assets and establish a legal structure. It will regulate service providers and establish necessary information requirements, such as travel rules,” Weeraratne clarified.

The inclusion of mechanisms similar to travel rules indicates a commitment to aligning Sri Lanka’s digital financial regulations with international anti-money laundering standards. Establishing this regulatory architecture is a priority for the digital economy sector, as it is a necessary precursor to integrating digital financial innovations into the broader national economy safely. 

Regarding the timeline for the implementation of these new regulations, Weeraratne provided a clear operational target for the Government. “The target is to develop the regulatory framework and enact the legal framework within this year,” he said.