ECONOMYNEXT – Sri Lanka’s Colombo Port City Special Economic Zone will have offshore banks for which regulations will be made by the President and licensed and also stock exchanges which will be regulated by an Economic Commission that will administer the area, according to a draft law.
Licenses for offshore banking will be issued Sri Lanka’s Banking Act by the Finance Minister with the concurrence of the of President on a recommendation of the Colombo Port City Economic Commission, which administers the special economic zone.
The concurrence of the Monetary Board of the central bank will also be sought.
The President will also make regulation for offshore banking in consultation with the Minister of Finance and Monetary Board.
The Commission may also revoke a license after hearing is granted to the licensee. The concurrency of the Monetary Board will be sought.
According to the draft law offshore banking businesses may:
a)accept savings, time and demand deposits from any authorised person or a non-resident in any
designated foreign currency;
(b) borrow any sum in a designated foreign currency from any non-resident;
(c) extend accommodation to any non-resident in any designated foreign currency;
(d) engage in any transaction in any designated foreign currency with any other offshore unit;
(e) engage in any other transaction in a designated foreign currency, with a non – resident;
(f) engage in any other transaction as may be envisaged under this Act;
(g) engage in any transaction permitted under the Foreign Exchange Act, No. 12 of 2017; or
(h) engage in any other transaction in any designated foreign currency, authorised by the Commission
with the concurrence of the Monetary Board.
The Colombo Port City will also regulate any stock exchange set up in the area using the Securities and Exchange Commission Act.
The SEC Act will remain in force until the Port City Commission issues its own regulations. Concurrence of the SEC will be sought to apply the rules.
The Colombo Port City will be fully dollarized and workers will be paid in foreign currency and get tax free salaries.
Unlike other financial centres such as Hong Kong (near orthodox currency board), Singapore modified currency board, Dubai (currency board like system), Cayman Islands (currency board like system) Sri Lanka itself has a highly unstable soft-peg which is frequently subject to currency crises.
Though Port City, will be fully dollarized and therefore incapable of running into currency crises, it is not clear what the effect will be on sovereign rating ceilings on entities operating within the area. (Colombo/Mar29/2021)