regulatory provisions for capital requirements, shareholder limits, credit operations, provisioning requirements, consolidation, acquisition and mergers, suspension, winding up of banking companies, etc. sri lanka ’ s banking sector is currently operating on basel i, but getting ready to implement basel ii capital adequacy ratios from early 2008. basel ii is basically risk mitigation in banking operations and, it allows supervisors and regulators to encourage or require banks to build up capital buffers in good times. financial regulations have thus been set taking into consideration the cyclical situation which banking firms face in home and host countries. in addition to the provisions in the banking act, the monetary law act which governs the operations of the central bank, also provide for regulation of banking companies. however, in recent times, through various amendments, most of the provisions of the monetary law act have been incorporated in the banking act. their stock market operations come under the purview of the sec act. in addition to the banks, the central bank regulates the finance companies under finance companies act and the leasing companies under the leasing act. the primary dealers who deal in the government securities market irrespective of whether they are banks or not, are under the supervision of the central bank. the sec regulates the investment companies, merchant banks, venture capital companies, unit trusts and the rating agencies. under the provisions of the act, the sec issues financial regulations to ensure that companies listed in the stock exchange operate in an orderly manner preserving the stability of the capital markets and, as a whole, the financial system. the registered insurance companies, the insurance broking companies and ancillary service providers are regulated by the ibsl to safeguard public interest. the insurance policies consist of long - term savings of the public and, therefore, the sustainability of insurance companies is important for longterm savers. all financial institutions operating in sri lanka are required to comply with the recently enacted money laundering legislation, countering the terrorist financing legislation and the financial transaction reporting act. relevant regulations will be issued shortly. the recently introduced payments and settlements act provides wide powers to the central bank to regulate the national payments system. despite these legislation and financial regulations, there are many operations by the financial intermediaries which cannot be captured by one or more financial regulation. one such category is financial conglomerates, which engage in banking and finance, insurance and stock market transactions. they still have a leeway to take advantage over others. regulating these conglomerates is a real challenge.

ranee jayamaha : glimpse of current financial regulations inaugural speech by dr ranee jayamaha, deputy governor of the central bank of sri lanka, at the client seminar on international trade, organized by hnb ( hatton national bank ), colombo, 13 november 2006. * * * mr theagarajah, officials of hnb, mr richard lightbound from wachovia bank, distinguished participants, ladies and gentlemen. thank you for the invitation extended to me to be present at the client seminar on trends in international trade. let me congratulate hnb for taking the corporate social responsibility seriously and arranging a forum to exchange stakeholder views on an important subject. generally, regulations are not liked by anybody. same goes with the financial community in sri lanka. however, the common factor is that even regulators do not like to rule by regulation. for a better appreciation of the past and present financial regulatory environment, let me first set out the key elements underlying financial regulations. in summary : ( a ) regulations are mainly a reaction to an action by the financial community, although there may be instances in which regulations are brought in on hindsight with a forward - looking approach, but they are a few ; ( b ) there is a clear difference between the objectives of regulators and market participants ; ( c ) regulations are not necessarily a oneway street. they are not there only to tighten markets. many instances can be quoted where regulations have been relaxed depending on the circumstances and environment ; ( d ) regulators should be proactive and work towards the development of markets rather than impeding their growth ; and ( f ) the institutions and markets that are subjected to regulations should not try to find loopholes to circumvent regulations. unless there is a conscious decision by the shareholders, the director boards, the senior management and officials of financial institutions, regulations by themselves do not bring in decided results. let me first deal with the world financial regulatory environment with a brief background of attempts made to stabilise financial systems. over the last 2 decades or so, the financial sector witnessed a radical reform process. the focus of the reforms was on deregulation and liberalization of the financial sector. the volume and value of transactions have increased many times, the speed with which transactions are initiated and completed has accelerated ; new markets have opened up ; there has been a significant expansion in the range of financial instruments ; financial firms have grown bigger and bigger and international businesses have become increasingly concentrated in the hands of a