Banks prohibit forex card payments for trading, betting, gaming

By Shenal Fernando

Several local banks have given notice to all cardholders that their cards should not be utilised in dealings in foreign exchange (forex trading); payments related to virtual currency transactions; payments related to betting, gaming, and gambling activities outside Sri Lanka; and payments for import of goods to Sri Lanka for commercial purpose. 
The banks have further stated that the failure to adhere to the said notice will result in the card being blocked and reported. 

This comes in addition to the fact that over the past few weeks, certain individuals in the business community who routinely use credit cards have allegedly reported that their credit cards have been suspended and their transactions halted by the relevant bank(s) who have further informed them to seek an alternative method of payment. 

These recent developments are not the result of any new restrictions imposed by the Central Bank. Instead, they are merely based on Directions No. 3 of 2021 on Electronic Fund Transfer Cards (EFTCs) dated 18 March 2021, issued by the Depart of Foreign Exchange of the Central Bank of Sri Lanka, which has been in force since 22 March 2021.  
Under these directions issued by the Central Bank, EFTCs (credit or debit cards) may be used only for cross-border transactions of a personal nature and not for commercial purposes. A further restriction is imposed by the said directions, requiring that the EFTCs not be used for certain specified transactions which were listed in the recent notice issued by local banks as mentioned above. 

These directions have imposed an obligation on banks to suspend any foreign exchange transaction by an EFTC if reasonable grounds exist to suspect that the said transaction is for a commercial purpose or is otherwise not permitted under the said directions. Any person seeking to use an EFTC for a purpose beyond what is allowed under the date of the said directions (12 March 2021) is required to obtain written permission of the Director of the Department of Foreign Exchange of the Central Bank. 

These directions on EFTCs do not specify any limits on foreign exchange transactions by EFTCs. However, it is reported that certain local banks have imposed limits on foreign exchange transactions by EFTCs. The Central Bank in its press release on 20 August 2021 acknowledged that the imposition of such foreign exchange transaction limits and prioritisation of transactions is within the discretion of the respective bank in order to avoid the misuse of the cards and in accordance with the foreign exchange position of the said bank.  

The official gross foreign reserves in Sri Lanka had fallen to around $ 2.8 billion in July 2021 – its lowest position since July 2009. However, the foreign reserves were strengthened in August 2021 due to the influx of $ 787 million from the International Monetary Fund’s (IMF) special drawing rights (SDR) allocation, $ 150 million from the Bangladesh Central Bank under the swap arrangement, and ¥ 2,000 million ($ 300 million) from the China Development Bank.