CBSL tightens rules on finance company structural changes

The Central Bank of Sri Lanka (CBSL) has issued Finance Business Act Directions No. 04 of 2026 on Structural Changes, consolidating the approval regime governing licensed finance companies (FCs) and revoking three earlier directions. The changes broadly tighten restrictions on investments in non-core areas of business and inorganic expansion.

The Directions, issued in August, apply to all FCs licensed under the Act and take effect from the date of issuance, subject to transitional provisions. CBSL said the objective is to ensure that structural changes take place in a prudent, transparent and orderly manner, while safeguarding the resilience and soundness of FCs and the stability of the financial system.

FCs must now obtain prior approval from the approving authority specified in Annexure I before undertaking any listed structural change. Table I of the Annexure divides the approval authority between the Governing Board of CBSL and the Director of the Department of Supervision of Non-Bank Financial Institutions (DSNBFI).

The Director of the DSNBFI approves changes in share capital, including any increase or decrease in the number of shares or total share capital arising from issuances, cancellations, splits, consolidations, share buy-backs or other capital adjustments.

Approval is also required for changes to the Articles of Association, the commencement or operation of a business activity not directly related to finance business, and the transfer or sale of assets with a book value exceeding 10% of core capital, as shown in the capital adequacy return for the immediately preceding quarter, in a single transaction or a series of related or connected transactions, at a price below the prevailing market value.

Prevailing market value is defined as the price determined by a licensed valuer for an arm’s-length exchange between a willing buyer and a willing seller.

Separately, the Directions prohibit an FC from transferring or selling any asset for consideration other than monetary consideration, which must pass in favour of the FC.

Substantive conditions now govern group structures. An FC may not form another FC as a subsidiary or associate, and may not form, acquire or operate a subsidiary or associate within Sri Lanka providing non-financial services unless those services are required to carry out its core business.

Where permitted, the majority of that company’s services must be directed towards the FC, with a limited level of third-party services allowed where necessary for its operational sustainability. Non-financial services are defined by reference to activities other than those of a financial sector participant under the Central Bank of Sri Lanka Act No. 16 of 2023.

Subsidiaries or associates outside Sri Lanka are permitted only where the company provides financial services exclusively, is regulated by a financial sector regulator in the host jurisdiction, and does not operate with multi-layered, cross-jurisdictional ownership structures.