AML reforms strengthen FIU powers but CoPF questions independence

• Bills seek stronger legal footing for Financial Intelligence Unit and National Coordinating Committee
• Cabinet to gain greater authority to enforce AML action across public institutions
• CoPF raises questions over FIU’s long-term independence from Central Bank

Sri Lanka’s latest anti-money laundering legislative package would give statutory recognition to the Financial Intelligence Unit (FIU) and strengthen coordination across Government agencies, although Parliament’s finance watchdog questioned whether the country’s principal financial intelligence body should eventually operate independently of the Central Bank.

Officials from the Central Bank told the Parliamentary Committee on Public Finance that amendments to the Financial Transactions Reporting Act would formally establish the FIU in law, clarify its operational independence and expand its responsibilities to include proliferation financing alongside money laundering and terrorist financing. The amendments would also introduce a statutory risk-based approach, strengthen customer due diligence and beneficial ownership requirements, and widen the range of reporting institutions. Although the FIU has operated as a Central Bank department since 2006, officials acknowledged that existing legislation identifies it only through a definition rather than an express establishment provision. The amendments are intended to satisfy FATF Recommendation 29, which requires financial intelligence units to be operationally independent and autonomous, even when housed within another institution.

During the hearing, CoPF questioned whether operational independence alone was sufficient when appointments and removals remain under the Central Bank’s Governing Board. Committee members suggested the Government should eventually consider a governance model under which the FIU reports independently of the Central Bank, particularly given its expanding role in investigating financial crime.

Central Bank officials responded that many jurisdictions operate administrative FIUs within central banks or other institutions and noted that international standards do not require the body to exist as a separate standalone agency, provided operational independence is preserved.

The legislation would also place the National Coordinating Committee on Anti-Money Laundering, Countering the Financing of Terrorism and Countering Proliferation Financing on a statutory footing. The committee would be streamlined into a nine-member body chaired by the Central Bank Governor and comprising senior representatives from the Treasury, Defence, Justice, Foreign Affairs, Public Security, the Attorney General’s Department, Police and Customs, with the FIU Director serving as secretary.

Unlike the current committee, the statutory body would be able to refer non-compliance by public authorities to the Cabinet through the Finance Minister. Officials said this would provide a mechanism for Cabinet to direct agencies to implement agreed action plans or address resource constraints that have delayed Sri Lanka’s AML reforms in recent years.

Officials argued that the reforms are essential to improving both Sri Lanka’s technical compliance with the FATF’s 40 recommendations and the effectiveness of the country’s anti-money laundering framework ahead of the third mutual evaluation, warning that previous deficiencies had contributed to Sri Lanka’s inclusion on the FATF grey list.