Sri Lanka has recently experienced a series of financial fraud incidents that mark a notable development in the region, according to industry experts. While such cases are common in larger financial markets across North America, Europe, and Asia, this represents a first of its kind in Sri Lanka’s banking sector, raising concerns among regulators and financial institutions.

Abhinav Bansal, Managing Director and Senior Partner at Boston Consulting Group (BCG) and India Lead for Financial Institutions, explained that the prevalence of fraud in larger economies is often linked to extensive branch networks, manual processes, and complex operational frameworks. These factors increase the risk of both unintentional errors and deliberate wrongdoing, including collusion. He emphasized the importance of improving compliance protocols and leveraging data analytics to more accurately identify genuine threats while reducing false positive alerts.

Bansal noted that while the maturity of financial risk management has grown considerably worldwide, operational risk management remains underdeveloped. Regulators in countries like India and Australia have begun addressing this gap by focusing on critical operational areas and encouraging financial institutions to upgrade their platforms accordingly. The intention is to balance the relatively lower frequency of operational incidents with their potentially high impact.

The situation in Sri Lanka is particularly concerning because the country has not previously faced such fraud at this scale. Bansal highlighted that the economic and political crises from 2017 onward, compounded by the COVID-19 pandemic, shifted national priorities away from technological innovation and process improvements within the banking sector. Nonetheless, Sri Lanka’s banking system is viewed as resilient, having demonstrated a V-shaped recovery, and there is renewed interest in adopting global best practices and digital advancements.

In recent years, Sri Lankan banks have embarked on AI-driven digital transformation efforts, mainly targeting customer-facing business processes. Operational processes, however, have received less immediate focus. As digitization progresses, it is anticipated that anomalies and fraud attempts will become more visible in real time. Bansal stressed that developing the right infrastructure, including digital public infrastructure linked to banking platforms, will be essential to strengthen risk detection capabilities.

Another factor influencing fraud patterns is the rise of generative artificial intelligence, which has lowered the cost and increased the accessibility of fraud operations. This shift enables smaller-value but more frequent fraudulent activities, presenting new challenges for financial institutions.

Bansal also underscored the importance of raising awareness among stakeholders and customers about how scams are perpetrated. He called for banks to invest in robust guardrails and analytics, with tailored metrics and thresholds adapted to specific contexts such as location, branch, and timing. Such measures, coupled with talent skilled in operational risk, are critical for enhancing the banking sector’s ability to distinguish between accidental errors and malicious intent and to mitigate emerging threats effectively.