Quick Answer
Cryptocurrency is not legal tender and is unregulated in Sri Lanka.
- The Central Bank warns against crypto; no regulatory safeguards exist for users.
- Banks are prohibited from processing crypto transactions, including card payments.
Legal Status of Crypto in Sri Lanka
Cryptocurrency in Sri Lanka occupies a legal gray area; it is not officially illegal, but it is also not recognized as legal tender or a protected asset class. This status stems from the cautious approach of the Central Bank of Sri Lanka (CBSL), which has issued multiple public warnings about investment risks and has not authorized any crypto exchanges or services. Consequently, while ownership isn't explicitly outlawed, activities are unregulated, and financial institutions are barred from facilitating crypto-related payments. Regulatory oversight falls to the CBSL and its Financial Intelligence Unit (FIU), with general compliance laws like the Financial Transactions Reporting Act applying in the absence of a crypto-specific framework.
Current Regulations
Sri Lanka currently lacks a specific regulatory framework for cryptocurrencies, which are not recognized as legal tender. The Central Bank of Sri Lanka (CBSL) has not authorized any businesses to operate crypto exchanges, mining, or advisory services, instead issuing repeated public warnings about the significant risks involved. Furthermore, under the Foreign Exchange Act, the use of debit and credit cards for cryptocurrency transactions is prohibited. This leaves the sector entirely unregulated, with no legal safeguards for investors.
Regulatory Authorities
While no specific crypto framework exists, several regulatory bodies would be involved in enforcing rules for digital assets.
- Central Bank of Sri Lanka (CBSL): The CBSL is the country's main financial regulator and has consistently warned the public about the risks of unregulated cryptocurrencies. It prohibits banks from processing crypto payments and has not authorized any crypto-related businesses, such as exchanges or advisory services.
- Financial Intelligence Unit (FIU): As Sri Lanka's national authority for combating financial crime, the FIU is responsible for monitoring and analyzing suspicious transactions, including those involving crypto assets. It issues public warnings about crypto-related scams and enforces Anti-Money Laundering (AML) compliance.
- Securities and Exchange Commission of Sri Lanka (SEC): The SEC is responsible for regulating Sri Lanka's securities market and protecting investors. Its authority would apply to any digital assets or crypto tokens that are classified as securities, including oversight of trading platforms and Initial Coin Offerings (ICOs).
Historical Context
Sri Lanka’s regulatory journey with crypto began in 2018 when the Central Bank of Sri Lanka (CBSL) issued its first public warning, declaring digital currencies were not legal tender. A significant policy shift occurred in 2021 with a directive under the Foreign Exchange Act that prohibited banks and card payments for crypto transactions. This effectively cut off formal channels, pushing activity into an unregulated gray market. While the CBSL continues to warn against scams, it is also exploring a state-backed alternative, announcing plans in 2024 to launch a Central Bank Digital Currency (CBDC).
Compliance Requirements for Businesses in Sri Lanka
While Sri Lanka lacks a crypto-specific legal framework, any business operating in or adjacent to the financial sector must adhere to the country's stringent general compliance regulations. The Central Bank of Sri Lanka (CBSL) and the Financial Intelligence Unit (FIU) enforce a robust set of rules designed to combat money laundering and the financing of terrorism. Key requirements include:
- Implement robust AML and KYC procedures: This includes mandatory customer identification and verification at onboarding, with enhanced due diligence required for high-risk clients and Politically Exposed Persons (PEPs).
- Report specific transactions to the FIU: Businesses must file Suspicious Transaction Reports (STRs) within three working days of suspicion and Currency Transaction Reports (CTRs) for any cash transaction or electronic fund transfer exceeding LKR 1 million.
- Conduct regular sanctions screening: All customers must be screened against United Nations and domestic sanctions lists, with immediate asset freezes and reporting required for any matches.
- Maintain records for six years: All customer identification data, transaction records, and compliance-related documentation must be retained for a minimum of six years after the business relationship ends.
- Appoint a Compliance Officer and establish an audit function: Financial institutions must appoint a dedicated officer responsible for AML/CFT compliance and establish an independent audit function to test the effectiveness of compliance systems.
- Ensure comprehensive staff training: All employees must be trained to understand laws related to financial crimes, recognize suspicious transactions, and be aware of their reporting obligations.
- Comply with data protection laws: Businesses must adhere to the Personal Data Protection Act, which governs data localization, secure storage, and breach notification protocols.
Why this matters for Cross-Border Payments
The stringent regulatory environment in Sri Lanka creates significant hurdles for cross-border payments, particularly with major trading partners like India. Because local financial institutions are barred from processing any crypto-related transactions, businesses cannot use digital assets for settling international invoices or managing treasury operations. This forces companies to rely on traditional banking systems, which are often slower and more expensive, negating the potential speed and cost-efficiency benefits of crypto. The resulting friction can stifle trade and introduce compliance risks for firms operating between the two nations.
How Lightspark Enables Compliant Crypto-Native Payments
Lightspark provides a global payments platform built on Bitcoin for instant, low-cost money movement. Its products, Lightspark Connect and Grid Switch, offer two ways to access this network. Lightspark Connect lets businesses use the Bitcoin Lightning Network, with Lightspark managing nodes, liquidity, and AI-powered routing. Grid Switch enables institutions to leverage domestic real-time payment rails for cross-border transactions. This dual approach bypasses slow, costly banking systems, addressing key payment friction.
For regulated institutions, Lightspark provides tools to aid compliance. The platform offers features like audit-ready reporting, flexible custody options, and integrations that support requirements like the travel rule and OFAC screening. While not managing compliance directly, its infrastructure is designed to be compliance-ready, giving financial institutions the components to operate within regulatory boundaries.
To learn more about Lightspark's compliance-ready payment solutions, contact their team.
Notice: This article is provided for informational purposes only and does not constitute legal advice.
Sources
- Anqa Compliance. "Sri Lanka AML & Sanctions Guide (2025): FIU & CBSL." Anqa Compliance, 2025, anqacompliance.com/sri-lanka-aml-sanctions-compliance.
- Bank Supervision Department, Central Bank of Sri Lanka. Guidelines on Opening of New Banks in Sri Lanka. Bank Supervision Department, Central Bank of Sri Lanka, June 2024, www.cbsl.gov.lk/sites/default/files/cbslweb_documents/laws/banks.pdf.
- Central Bank of Sri Lanka. "Risks of using and investing in Cryptocurrency." Central Bank of Sri Lanka, 29 Mar. 2023, www.cbsl.gov.lk/en/news/risks-of-using-and-investing-in-cryptocurrency-20230329.
- Chakrawarty, Shweta. "Cryptocurrency Regulations in Sri Lanka." Coinfomania, 20 June 2025, coinfomania.com/cryptocurrency-regulations-in-sri-lanka/.
- Cryptonews. "Sri Lanka’s Stance on Crypto and the Launch of ‘Lanka Pay’ in 2024." Cryptorank.io, 22 Jan. 2024, cryptorank.io/news/feed/4fa88-sri-lankas-stance-on-crypto-and-the-launch-of-lanka-pay-in-2024.htm.
- Financial Intelligence Unit, Central Bank of Sri Lanka. "Protecting the Public from Crypto Investment Scams." Financial Intelligence Unit, Central Bank of Sri Lanka, 14 Jan. 2024, www.cbsl.gov.lk/sites/default/files/cbslweb_documents/press/notices/notice_20240114_protecting_the_public_from_crypto_investment_scams_e.pdf.
- Patabendige, Charani L.C.M., and Thisuri Jayathma. "Prospects and challenges of Cryptocurrencies in Sri Lanka." Institute of National Security Studies, www.inss.lk/index.php?id=756.
