AN ACT TO PROVIDE FOR THE RESOLUTION AUTHORITY OF THE CENTRAL
BANK AND THE RESOLUTION MEASURES THAT CAN BE IMPLEMENTED BY
THE CENTRAL BANK AND THE GOVERNMENT OF SRI LANKA TO RESOLVE
A LICENSED BANK SUBJECT TO CAPITAL, LIQUIDITY, INSOLVENCY OR
ANY OTHER RISK IN A TIMELY MANNER; TO REVIVE SUCH BANK AS A
GOING CONCERN TO ENSURE THE INTERESTS OF THE DEPOSITORS AND
CREDITORS THEREOF ENSURING THE FINANCIAL SYSTEM STABILITY; TO
PROVIDE FOR A DEPOSIT INSURANCE SCHEME AND WINDING UP PROCESS
FOR SUCH LICENSED BANKS; AND TO PROVIDE FOR MATTERS CONNECTED
THEREWITH OR INCIDENTAL THERETO.
BE it enacted by the Parliament of the Democratic Socialist Republic of Sri Lanka as follows:-
Short title and date of operation
1
(1) This Act may be cited as the Banking (Special
Provisions) Act, No. 17 of 2023.
(2) The provisions of this Act other than the provisions of
this section shall come into operation on such date as the
Minister may appoint by Order published in the Gazette
(in this Act referred to as the “appointed date”).
(3) The provisions of this section shall come into
operation on the date on which the Bill becomes an Act of
Parliament.
Application of the Act
2. Notwithstanding anything to the contrary in any other
written law for the time being in force, provisions of this Act
shall apply in the exercise, performance and discharge of
the powers, duties and functions relating to the authority
vested with the Central Bank to resolve banks licensed under
the Banking Act (in this Act referred to as the “licensed
banks”).
PART I
RESOLUTION AUTHORITY OF THE CENTRAL BANK
Resolution authority of the Central Bank
3. The Central Bank shall be responsible for the exercise
of resolution authority in respect of licensed banks under
this Act.
Establishment of
a department for
the purpose of
resolution of
licensed banks
4.
(1) For the purposes of this Act, the Central Bank shall
establish a Department under the Central Bank, for the proper
and efficient exercise, performance and discharge of its
powers, duties and functions relating to the resolution
authority under this Act.
(2) The Department established under subsection (1) shall
not carry out regulatory and supervisory functions over
licensed banks under any written law.
Exercise,
performance
and discharge of
resolution
authority by the
Central Bank
5.
(1) In the exercise, performance and discharge of the
powers, duties and functions relating to its resolution
authority, the Central Bank shall take into consideration,
the structure, scale, complexity, interconnectedness with
other institutions, and the risk profile of the licensed bank
subject to resolution.
(2) The Central Bank shall have the power to require any
person to provide any information necessary for the Central
Bank to decide upon and formulate resolution measures,
including updates and supplements of information relating
to the resolution plan, and information collected through
on-site examinations.
(3) Any licensed bank, regulatory or supervisory authority,
or such other person on whom any Order, regulation,
direction, determination, guideline or instruction has been
issued or a request has been made by the Central Bank under
this Act, shall comply with such Order, regulation, direction,
determination, guideline or instruction or request forthwith
or not later than the time period specified therein.
(4) Every regulatory and supervisory department of the
Central Bank shall extend cooperation to the Department
established under section 4 to expeditiously facilitate the
relevant regulatory or supervisory approvals required to
implement the resolution measures prepared under this Act.
Exclusion of the
application of
certain other
enactments
6.
(1) The provisions of any one or more enactments
specified in the Schedule to this Act or any part of such
provisions relating to resolution, winding up or deposit
insurance shall have no application in the exercise,
performance and discharge of the powers, duties and
functions of the Central Bank on a licensed bank subject to
resolution under this Act in securing compliance with the
provisions of this Act and any other regulation, Order,
direction, determination, guideline or instruction issued or
made thereunder by the Central Bank.
(2) Notwithstanding the Central Bank exercising the
resolution authority under this Act, the regulatory
requirements applicable to any licensed bank under the
Banking Act or any regulation, Order, direction,
determination, guideline or instruction issued or made
thereunder, shall continue to apply in respect of such
licensed bank subject to resolution.
Provisions of
this Part of this
Act to apply to a
holding
company, &c.
of a licensed
bank
7.
(1) Where the Central Bank is satisfied that a holding
company of a licensed bank, a subsidiary or associate
company of a licensed bank or any entity within a financial
group or conglomerate of such licensed bank, as the case
may be, which is not regulated or supervised by the Central
Bank-
(a) provides any service or performs any duty for or on
behalf of such licensed bank subject to resolution,
which are or are deemed to be significant to perform
critical functions of such licensed bank; or
(b) the suspension or discontinuation of such service
or duty by such entities is or is likely to be detrimental to the interests of the depositors and
creditors of such bank, or jeopardize the stability
of the financial system of Sri Lanka, and
in the event, there are no alternatives available for such
licensed bank to ensure the continuity of such service or
duty which is significant to perform critical functions, it
shall be lawful for the Central Bank to apply the provisions
of this Part of this Act to a company or entity specified in
this subsection in the same manner as they apply to a licensed
bank subject to resolution.
(2) In the event of any company or entity specified in
subsection (1) is regulated by a financial sector regulator
other than the Central Bank, the Central Bank shall prior to
taking any measures to resolve such company or entity under
this Act, consult such regulator and give due notice to such
regulator in respect of such measures.
Objectives of resolution
8. The Central Bank shall, in the exercise, performance
and discharge of its powers, duties and functions relating to
the resolution authority under this Act, on a licensed bank, endeavour to ensure-
(a) the stability of the financial system, including the
payment, clearing and settlement systems;
(b) the continuity of critical functions of such licensed
bank;
(c) the protection of public funds by minimizing public
financial support;
(d) the protection of depositors of such licensed bank;
and
(e) avoiding destruction of the value of assets and
minimizing losses to creditors and minimizing overall costs of resolution of such licensed bank.
Licensed banks
to prepare a
recovery plan
9
(1) Every licensed bank shall prepare a recovery plan
as part of its risk management process, which shall provide
for measures to be taken by such licensed bank in the event
of deterioration of its financial position.
(2) In the preparation of a recovery plan, a licensed bank
shall take into consideration, financial and macroeconomic
crisis scenarios relevant to the specific characteristics of the
licensed bank, systemic events, crisis scenarios specific to
such licensed bank and other individual entities of the
banking group, as a whole.
(3) In the preparation of a recovery plan, a licensed bank
shall not rely on in any manner, the access to any
extraordinary public financial support.
(4) Every licensed bank shall update its recovery plan at
least annually, or at the request of the Central Bank in the
event of any change in the organizational structure or legal
structure of the licensed bank, business activities or financial
situation of the licensed bank, which may cause a significant
impact on the recovery plan or where it requires modification.
(5) The recovery plan prepared under subsection (1) shall include -
(a) a presentation of the general recovery capacity of
the licensed bank;
(b) the scope of the recovery plan, considering the
nature, scale, structure, complexity, and
interconnectedness to other institutions of the
licensed bank;
(c) the details of other entities within the banking
group covered under the recovery framework;
(d) the details of communication planning on recovery
options;
(e) an identification of critical functions and critical
shared services of the licensed bank that are
organized in a manner ensuring the continuous
availability of such functions or services to the
entire licensed bank under possible recovery or
resolution processes;
(f) an identification of recovery indicators, triggers,
and procedures to ensure the timely implementation
of recovery actions;
(g) the range of recovery options available to deal with
shocks, to capital, liquidity and all other aspects
that may arise from entity specific stresses or market
wide stresses, or both of such stresses, as the case
may be;
(h) the time and resources required to implement
recovery options;
(i) significant deficiencies of resources that may hinder
the effective and timely implementation of the
recovery plan;
(j) the actions to be taken to remedy the impediments
including the availability of business continuity
planning;
(k) the details on costs of implementation;
(l) a detailed description of how the recovery plan is
integrated into the licensed bank’s management;
(m) the persons who are responsible for the development
and implementation of the recovery plan within
the licensed bank;
(n) the policies and procedures for approving the
recovery plan;
(o) the mechanisms and measures for-
(i) the conservation or reconstitution of the
funds of the licensed bank;
(ii) ensuring that the licensed bank has access to
emergency financing sources, including
potential sources of liquidity,...
