Sri Lanka

Retail_Trading_Status

Gray-Zone Unknown

Analysis ID: #575
Version: Latest
Created: 2025-07-04 10:14
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Executive Summary

Retail cryptocurrency trading in Sri Lanka exists in a 'Gray-Zone,' neither explicitly legal nor completely banned. The Central Bank of Sri Lanka (CBSL) has issued warnings against cryptocurrencies and prohibits their funding through domestic banking channels. Despite these restrictions, retail trading persists through informal channels like P2P platforms. The government formed a committee in 2021 to study digital banking and cryptocurrencies, but no concrete regulations have been implemented as of mid-2025.

Key Pillars

The primary regulator is the Central Bank of Sri Lanka (CBSL), which maintains a hostile stance towards cryptocurrencies. Core compliance requirements like AML/CFT are not clearly defined for crypto service providers due to the lack of a regulatory framework. There are currently no licensing or registration requirements for cryptocurrency exchanges or related services operating within Sri Lanka.

Landmark Laws

Directions No. 03 of 2021 under the Foreign Exchange Act, No. 12 of 2017: Prohibits the use of Electronic Fund Transfer Cards (EFTCs), such as debit and credit cards, for cryptocurrency transactions.

Considerations

Cryptocurrencies are not considered legal tender or an asset class in Sri Lanka. There is no clarity on the taxation of crypto-related gains. The CBSL has raised concerns about significant financial, operational, legal, and security risks associated with virtual currencies. Restrictions on fiat access through the formal banking system force users to rely on alternative methods like P2P trading.

Notes

In 2021, the government formed a committee to explore a regulatory framework for digital banking and cryptocurrencies, but no regulations have been enacted as of 2025. The lack of regulation pushes activity into informal channels. Press releases from the CBSL in 2018, 2021, 2022, and January 2024 reiterate the risks associated with cryptocurrencies and the lack of authorization for crypto-related businesses.

Detailed Explanation

As of July 4, 2025, retail cryptocurrency trading in Sri Lanka operates within a 'Gray-Zone.' This means that while there is no explicit law prohibiting the buying, selling, or holding of cryptocurrencies, the Central Bank of Sri Lanka (CBSL) maintains a prohibitive stance, creating a high-risk environment for retail investors. The CBSL has consistently issued public warnings regarding the risks associated with cryptocurrencies, stating that they are not considered legal tender in the country. These warnings were issued in 2018, 2021, 2022, and most recently in January 2024. The CBSL has explicitly stated that it has not granted any licenses or authorization to any entity to operate cryptocurrency exchanges, conduct Initial Coin Offerings (ICOs), or provide any related services. This leaves Sri Lankan citizens to use international exchanges at their own risk, as there are no locally regulated platforms.

A critical element contributing to the 'Gray-Zone' status is the formal restriction on funding cryptocurrency transactions through the domestic banking system. Under Directions No. 03 of 2021 of the Foreign Exchange Act, the CBSL has prohibited the use of Electronic Fund Transfer Cards (EFTCs), such as debit and credit cards, for transactions related to virtual currencies. This measure effectively cuts off the most direct link between the formal financial sector and the cryptocurrency market. As a result, individuals are forced to rely on alternative, often less secure, methods like peer-to-peer (P2P) trading.

Despite the official warnings and financial restrictions, retail trading persists, indicating a clear market demand that operates outside formal regulatory oversight. This activity takes place in an unregulated space, leaving investors without legal recourse or protection from the government in cases of fraud, platform failure, or market manipulation. The absence of a regulatory framework also results in a lack of clarity regarding Anti-Money Laundering (AML)/Counter-Financing of Terrorism (CFT) compliance for service providers and the taxation of crypto-related gains.

In 2021, the government formed a committee to study and propose a regulatory framework for digital banking and cryptocurrencies, acknowledging the growing global trend. However, as of mid-2025, this initiative has not yet translated into any concrete regulations, leaving the market in a prolonged state of uncertainty. Therefore, while individuals are not prosecuted for trading, the activity cannot be considered 'Allowed' due to the absence of legal recognition, regulatory safeguards, and the official discouragement and financial restrictions imposed by the Central Bank. The CBSL's press releases emphasize that cryptocurrencies are unregulated investment instruments not recognized as an asset class in Sri Lanka, and they lack regulatory safeguards. The Ministry of Defence, quoting a Colombo Telegraph article in November 2023, noted that the Sri Lankan crypto market exists in a significant era, with many countries worldwide accepting crypto transactions and implementing regulatory frameworks, while Sri Lanka has neither legalized nor entirely banned crypto.

Summary Points

Retail Cryptocurrency Trading Status in Sri Lanka (as of 2025-07-04)

I. Overall Regulatory Status: Gray-Zone

Definition: Retail cryptocurrency trading is neither explicitly legal nor illegal.
Characteristics:
- No specific laws prohibit buying, selling, or holding cryptocurrencies by individuals.
- Central Bank of Sri Lanka (CBSL) maintains a hostile and prohibitive stance.
- High-risk environment for retail investors due to lack of regulatory safeguards.

II. Key Regulatory Bodies and Their Roles

Central Bank of Sri Lanka (CBSL):
- Primary financial regulator.
- Issues public warnings about the risks associated with cryptocurrencies (2018, 2021, 2022, 2024).
- States cryptocurrencies are not legal tender.
- Has not licensed or authorized any cryptocurrency exchanges or related services.
- Restricts funding cryptocurrency transactions through the domestic banking system.
Government Committee (formed in 2021):
- Tasked with studying and proposing a regulatory framework for digital banking and cryptocurrencies.
- No concrete regulations have been implemented as of mid-2025.

III. Important Legislation and Regulations

Foreign Exchange Act, No. 12 of 2017, Directions No. 03 of 2021:
- Prohibits the use of Electronic Fund Transfer Cards (EFTCs) like debit and credit cards for cryptocurrency transactions.
- Effectively blocks direct funding of crypto transactions through the formal banking system.

IV. Requirements for Compliance

Lack of Formal Compliance Requirements: Due to the absence of a regulatory framework, there are no specific compliance requirements for retail traders or service providers.
Implied Risks: Individuals engaging in crypto activities are responsible for their own due diligence and risk management.

V. Notable Restrictions or Limitations

No Legal Tender Status: Cryptocurrencies are not recognized as legal tender in Sri Lanka.
Banking Restrictions: Direct funding of cryptocurrency transactions via domestic banks is prohibited.
Unregulated Exchanges: No locally regulated cryptocurrency exchanges exist.
Lack of Legal Recourse: Investors have no legal protection from the government in cases of fraud, platform failure, or market manipulation.
AML/CFT Uncertainty: No clarity on Anti-Money Laundering (AML) or Counter-Financing of Terrorism (CFT) compliance for service providers.
Taxation Uncertainty: No clear guidelines on the taxation of crypto-related gains.

VI. Recent Developments or Changes

Persistent Retail Trading: Despite warnings and restrictions, retail cryptocurrency trading continues.
Government Committee Inaction: The 2021 government committee has not yet produced concrete regulations.
Ongoing CBSL Warnings: The CBSL continues to issue warnings about the risks of cryptocurrencies (most recently in January 2024).

Full Analysis Report

Report on the Retail Trading Status of Cryptocurrency in Sri Lanka

Date: 2025-07-04

Topic: Retail_Trading_Status

Status: Gray-Zone

Detailed Narrative Explanation

The status of retail cryptocurrency trading in Sri Lanka is best described as a Gray-Zone. While there is no explicit law that makes the buying, selling, or holding of cryptocurrencies by individuals illegal, the environment created by the country's primary financial regulator, the Central Bank of Sri Lanka (CBSL), is overtly hostile and prohibitive. This creates a complex and high-risk landscape for retail investors, which is neither explicitly permitted nor completely banned.

The CBSL has consistently and repeatedly issued public warnings regarding cryptocurrencies, emphasizing that they are not considered legal tender in the country. These warnings, issued in 2018, 2021, 2022, and as recently as January 2024, highlight the significant financial, operational, legal, and security risks associated with virtual currencies. The Central Bank has explicitly stated that it has not granted any license or authorization to any entity to operate cryptocurrency exchanges, conduct Initial Coin Offerings (ICOs), or provide any related services. This means there are no locally regulated platforms, leaving citizens to use international exchanges at their own risk.

A critical element that solidifies the "Gray-Zone" status is the formal restriction on funding cryptocurrency transactions through the domestic banking system. Under Directions No. 03 of 2021 of the Foreign Exchange Act, the CBSL has prohibited the use of Electronic Fund Transfer Cards (EFTCs), such as debit and credit cards, for transactions related to virtual currencies. This measure effectively severs the most direct link between the formal financial sector and the cryptocurrency market, forcing individuals to rely on alternative, often less secure, methods like peer-to-peer (P2P) trading.

Despite these strong official warnings and financial restrictions, retail trading persists. A significant number of Sri Lankans engage with cryptocurrencies, demonstrating a clear market demand that operates outside the formal regulatory purview. This activity happens in an unregulated space, meaning investors have no legal recourse or protection from the government in cases of fraud, platform failure, or market manipulation. The lack of a specific regulatory framework also means there is no clarity on crucial aspects like Anti-Money Laundering (AML)/Counter-Financing of Terrorism (CFT) compliance for service providers or the taxation of crypto-related gains.

In 2021, the government did form a committee to study and propose a regulatory framework for digital banking and cryptocurrencies, acknowledging the growing global trend. However, as of mid-2025, this has not translated into any concrete regulations, leaving the market in a state of prolonged uncertainty. Therefore, the activity is not "Banned," as individuals are not prosecuted for trading, but it cannot be considered "Allowed" in any meaningful sense due to the lack of legal recognition, regulatory safeguards, and the official discouragement and financial blockades imposed by the Central Bank.

Specific, Relevant Text Excerpts

Source: Central Bank of Sri Lanka (CBSL), March 2023
"CBSL has already highlighted, through Press Releases issued in 2018, 2021, and 2022, the significant financial, operational, legal and security related risks as well as customer protection concerns posed to users of cryptocurrency... The public is reminded that cryptocurrencies are unregulated investment instruments which are not recognized as an asset-class in Sri Lanka. Further, cryptocurrencies are not considered as legal tender in Sri Lanka and have no regulatory safeguards relating to their usage in the country."
Source: Central Bank of Sri Lanka (CBSL), March 2023
"As per the Directions No. 03 of 2021 under Foreign Exchange Act, No. 12 of 2017, Electronic Fund Transfer Cards (EFTCs) such as debit cards and credit cards are not permitted to be used for payments related to cryptocurrency transactions."
Source: Central Bank of Sri Lanka (CBSL), January 2024
"A number of press releases has been issued by the CBSL to emphasize that it hasn't granted licenses or given authorization to people or businesses for activities like cryptocurrency operations, Initial Coin Offerings (ICOs), mining, exchanges, deposit-taking or custody services, or advisory services related to cryptocurrency."
Source: Ceylon Today, February 2025
"In Sri Lanka, their use is prohibited. According to the Central Bank of Sri Lanka (2023), “Cryptocurrency is a type of virtual currency that is generated by private entities and not by a monetary authority of a country... Even though digital currencies are not legalised in Sri Lanka, some individuals engage in related activities." Note: While the article uses the word "prohibited," the context clarifies this refers to the lack of legal recognition and authorization rather than an outright criminal ban on individual possession.
Source: Coinfomania, June 2025
"In the financial framework of Sri Lanka, cryptocurrencies exist as digital ghosts, neither accepted nor rejected yet always there. The CBSL was still cautious in 2025, not granting them any recognition as a legal tender while, at the same time, denouncing these currencies' risks. While the government has chosen to look away from regulation, informal channels permitted crypto to be adopted unofficially, with traders using peer-to-peer networks and offshore platforms."
Source: Ministry of Defence - Sri Lanka, quoting a Colombo Telegraph article, November 2023
"Despite its popularity, neither Crypto has been considered as legal nor the entire banning of the Crypto market has been imposed by the Sri Lankan government. Rather, the Sri Lankan Crypto market is in a significant era where many countries worldwide have already accepted Crypto transactions at present while implementing a policy framework to regulate the Crypto markets according to their national requirements."

Referenced URL Links

Central Bank of Sri Lanka - Risks of using and investing in Cryptocurrency (March 29, 2023):
https://www.cbsl.gov.lk/en/news/risks-of-using-and-investing-in-cryptocurrency
Central Bank of Sri Lanka - Protecting the Public from Crypto Investment Scams (January 14, 2024):
https://www.fiu.gov.lk/docs/Public_Awareness/Scam/notice_20240114_protecting_the_public_from_crypto_investment_scams_e.pdf
Ceylon Today - Prospects and challenges of Cryptocurrencies in Sri Lanka (February 7, 2025):
https://ceylontoday.lk/2024/02/07/prospects-and-challenges-of-cryptocurrencies-in-sri-lanka/
Ministry of Defence, Sri Lanka - The Urgent Need to Regulate the Sri Lankan Cryptocurrency Market (November 2, 2023):
https://www.defence.lk/news/the-urgent-need-to-regulate-the-sri-lankan-cryptocurrency-market
Coinfomania - Cryptocurrency Regulations in Sri Lanka (June 20, 2025):
https://coinfomania.com/cryptocurrency-regulations-in-sri-lanka/
CoinStats - Cryptocurrency Regulations in Sri Lanka (June 20, 2025):
https://coinstats.app/blog/cryptocurrency-regulations-in-sri-lanka/
Bitcoin.com News - Sri Lanka’s Crypto Regulation: Central Bank Warns of Cryptocurrency Risks, Unlicensed Exchanges (April 11, 2021):
https://news.bitcoin.com/sri-lankas-crypto-regulation-central-bank-warns-cryptocurrency-risks-unlicensed-exchanges/

## Report on the Retail Trading Status of Cryptocurrency in Sri Lanka

**Date:** 2025-07-04

### **Topic: Retail_Trading_Status**

#### **Status: Gray-Zone**

#### **Detailed Narrative Explanation**

The status of retail cryptocurrency trading in Sri Lanka is best described as a **Gray-Zone**. While there is no explicit law that makes the buying, selling, or holding of cryptocurrencies by individuals illegal, the environment created by the country's primary financial regulator, the Central Bank of Sri Lanka (CBSL), is overtly hostile and prohibitive. This creates a complex and high-risk landscape for retail investors, which is neither explicitly permitted nor completely banned.

The CBSL has consistently and repeatedly issued public warnings regarding cryptocurrencies, emphasizing that they are not considered legal tender in the country. These warnings, issued in 2018, 2021, 2022, and as recently as January 2024, highlight the significant financial, operational, legal, and security risks associated with virtual currencies. The Central Bank has explicitly stated that it has not granted any license or authorization to any entity to operate cryptocurrency exchanges, conduct Initial Coin Offerings (ICOs), or provide any related services. This means there are no locally regulated platforms, leaving citizens to use international exchanges at their own risk.

A critical element that solidifies the "Gray-Zone" status is the formal restriction on funding cryptocurrency transactions through the domestic banking system. Under Directions No. 03 of 2021 of the Foreign Exchange Act, the CBSL has prohibited the use of Electronic Fund Transfer Cards (EFTCs), such as debit and credit cards, for transactions related to virtual currencies. This measure effectively severs the most direct link between the formal financial sector and the cryptocurrency market, forcing individuals to rely on alternative, often less secure, methods like peer-to-peer (P2P) trading.

Despite these strong official warnings and financial restrictions, retail trading persists. A significant number of Sri Lankans engage with cryptocurrencies, demonstrating a clear market demand that operates outside the formal regulatory purview. This activity happens in an unregulated space, meaning investors have no legal recourse or protection from the government in cases of fraud, platform failure, or market manipulation. The lack of a specific regulatory framework also means there is no clarity on crucial aspects like Anti-Money Laundering (AML)/Counter-Financing of Terrorism (CFT) compliance for service providers or the taxation of crypto-related gains.

In 2021, the government did form a committee to study and propose a regulatory framework for digital banking and cryptocurrencies, acknowledging the growing global trend. However, as of mid-2025, this has not translated into any concrete regulations, leaving the market in a state of prolonged uncertainty. Therefore, the activity is not "Banned," as individuals are not prosecuted for trading, but it cannot be considered "Allowed" in any meaningful sense due to the lack of legal recognition, regulatory safeguards, and the official discouragement and financial blockades imposed by the Central Bank.

#### **Specific, Relevant Text Excerpts**

*   **Source: Central Bank of Sri Lanka (CBSL), March 2023**
    "CBSL has already highlighted, through Press Releases issued in 2018, 2021, and 2022, the significant financial, operational, legal and security related risks as well as customer protection concerns posed to users of cryptocurrency... The public is reminded that cryptocurrencies are unregulated investment instruments which are not recognized as an asset-class in Sri Lanka. Further, cryptocurrencies are not considered as legal tender in Sri Lanka and have no regulatory safeguards relating to their usage in the country."

*   **Source: Central Bank of Sri Lanka (CBSL), March 2023**
    "As per the Directions No. 03 of 2021 under Foreign Exchange Act, No. 12 of 2017, Electronic Fund Transfer Cards (EFTCs) such as debit cards and credit cards are not permitted to be used for payments related to cryptocurrency transactions."

*   **Source: Central Bank of Sri Lanka (CBSL), January 2024**
    "A number of press releases has been issued by the CBSL to emphasize that it hasn't granted licenses or given authorization to people or businesses for activities like cryptocurrency operations, Initial Coin Offerings (ICOs), mining, exchanges, deposit-taking or custody services, or advisory services related to cryptocurrency."

*   **Source: Ceylon Today, February 2025**
    "In Sri Lanka, their use is prohibited. According to the Central Bank of Sri Lanka (2023), “Cryptocurrency is a type of virtual currency that is generated by private entities and not by a monetary authority of a country... Even though digital currencies are not legalised in Sri Lanka, some individuals engage in related activities." *Note: While the article uses the word "prohibited," the context clarifies this refers to the lack of legal recognition and authorization rather than an outright criminal ban on individual possession.*

*   **Source: Coinfomania, June 2025**
    "In the financial framework of Sri Lanka, cryptocurrencies exist as digital ghosts, neither accepted nor rejected yet always there. The CBSL was still cautious in 2025, not granting them any recognition as a legal tender while, at the same time, denouncing these currencies' risks. While the government has chosen to look away from regulation, informal channels permitted crypto to be adopted unofficially, with traders using peer-to-peer networks and offshore platforms."

*   **Source: Ministry of Defence - Sri Lanka, quoting a Colombo Telegraph article, November 2023**
    "Despite its popularity, neither Crypto has been considered as legal nor the entire banning of the Crypto market has been imposed by the Sri Lankan government. Rather, the Sri Lankan Crypto market is in a significant era where many countries worldwide have already accepted Crypto transactions at present while implementing a policy framework to regulate the Crypto markets according to their national requirements."

#### **Referenced URL Links**

1.  **Central Bank of Sri Lanka - Risks of using and investing in Cryptocurrency (March 29, 2023):**
    [https://www.cbsl.gov.lk/en/news/risks-of-using-and-investing-in-cryptocurrency](https://www.cbsl.gov.lk/en/news/risks-of-using-and-investing-in-cryptocurrency)

2.  **Central Bank of Sri Lanka - Protecting the Public from Crypto Investment Scams (January 14, 2024):**
    [https://www.fiu.gov.lk/docs/Public_Awareness/Scam/notice_20240114_protecting_the_public_from_crypto_investment_scams_e.pdf](https://www.fiu.gov.lk/docs/Public_Awareness/Scam/notice_20240114_protecting_the_public_from_crypto_investment_scams_e.pdf)

3.  **Ceylon Today - Prospects and challenges of Cryptocurrencies in Sri Lanka (February 7, 2025):**
    [https://ceylontoday.lk/2024/02/07/prospects-and-challenges-of-cryptocurrencies-in-sri-lanka/](https://ceylontoday.lk/2024/02/07/prospects-and-challenges-of-cryptocurrencies-in-sri-lanka/)

4.  **Ministry of Defence, Sri Lanka - The Urgent Need to Regulate the Sri Lankan Cryptocurrency Market (November 2, 2023):**
    [https://www.defence.lk/news/the-urgent-need-to-regulate-the-sri-lankan-cryptocurrency-market](https://www.defence.lk/news/the-urgent-need-to-regulate-the-sri-lankan-cryptocurrency-market)

5.  **Coinfomania - Cryptocurrency Regulations in Sri Lanka (June 20, 2025):**
    [https://coinfomania.com/cryptocurrency-regulations-in-sri-lanka/](https://coinfomania.com/cryptocurrency-regulations-in-sri-lanka/)

6.  **CoinStats - Cryptocurrency Regulations in Sri Lanka (June 20, 2025):**
    [https://coinstats.app/blog/cryptocurrency-regulations-in-sri-lanka/](https://coinstats.app/blog/cryptocurrency-regulations-in-sri-lanka/)

7.  **Bitcoin.com News - Sri Lanka’s Crypto Regulation: Central Bank Warns of Cryptocurrency Risks, Unlicensed Exchanges (April 11, 2021):**
    [https://news.bitcoin.com/sri-lankas-crypto-regulation-central-bank-warns-cryptocurrency-risks-unlicensed-exchanges/](https://news.bitcoin.com/sri-lankas-crypto-regulation-central-bank-warns-cryptocurrency-risks-unlicensed-exchanges/)

Web Sources (11)

Sources discovered via web search grounding

Search queries used (6)

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Central Bank of Sri Lanka cryptocurrency notice 2024
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