The increased IT knowledge of the general public and proliferation of cheap computer technology mean that weaknesses in card payment systems are exploited fraudulently. Banks need to address these new operational risks through acceptable BCPs. 6. Advanced technology, legal framework and regulatory compliance  6.1 Market discipline is extremely important to establish an efficient and stable banking system. There is no harm in banking institutions constantly looking for sound management and higher profitability, but the banking institutions’ behaviour is being closely watched by the markets, customers and investors. It is, therefore, important for the banks to disclose their financial conditions according to appropriate accounting methods, including International  BIS Review 13/2008  3  Standards such as IAS 32, 39 and IFRS 7. Further, the banks have to enhance disclosures and introduce improvements to risk management and the provisioning for non-performing assets as per the Basel II framework. These requirements call for advanced infrastructure and technological transformation in banks. In moving towards advanced approaches under Basel II, “Data Warehousing” technology, along with sophisticated application programs for customer rating will be needed. 6.2 From a regulator’s point of view, technology has supported the modernization of the supervisory approach and risk-based regulatory processes. As banking business continues to grow through innovative products and electronic information based services, it has also necessitated a more risk-focused approach to supervision. Regulators need to be alert to the nature of banks’ activities, compliance with regulatory requirements, and their systems and controls, for which a continuous flow of information is necessary.

During the same period, the Electronic Transactions Act and the Payment Devices Frauds Act have been passed by the Government to authorize electronic transactions and to penalize fraudulent activities relating to card operations. These laws are intended to provide an enabling regulatory framework for banks and financial institutions to use IT facilities for their operations and mitigate risks that could arise from the abuse of systems and instruments. 7. Product-centered IT development and limited customer benefits  7.1 IT developments in the Banks have positively impacted their customers, but regrettably in a limited way. For example, although the RTGS system intended to facilitate third party customer transactions, many have not been able to use the system for speedy settlements. The RTGS and SSS systems were entirely funded by the Central Bank through grants made available by the Ministry of Finance. While banks in Sri Lanka enjoy these highly subsidized clearing and settlement facilities with enormous benefits, very little effort has been made to offer part of the benefits to their customers. Until recently, some banks charged their customers more than three times the charge the Central Bank levy on banks for RTGS transactions. Moreover, customers are not even encouraged to use the system due to rigid time lines imposed on third party transactions. 7.2 In the case of retail transactions too, the benefits are not always passed on to the customers.