The Sri Lankan government has instructed the drafting of legislation to create a regulatory framework for virtual assets, including cryptocurrencies, according to Eranga Weeraratne, Deputy Minister of the Ministry of Digital Economy. The directive aims to establish clear rules for the registration, reporting, and taxation of digital asset service providers operating within the country.

Cryptocurrencies are currently not recognized as legal tender in Sri Lanka, and local banks face limitations in processing direct cryptocurrency transactions. “Public awareness of virtual assets, their associated risks, and the applicable safeguards remains relatively limited,” Weeraratne said, emphasizing the need for a comprehensive regulatory regime.

The new law is intended to formalize oversight and designate an appropriate regulatory authority to monitor the virtual assets sector. It will also require mandatory registration and introduce reporting standards to enhance transparency and accountability. Additionally, the legislation will establish taxation mechanisms for businesses providing digital asset services, addressing the government’s intention to regulate this rapidly evolving market.

Sri Lanka’s move reflects a growing trend among governments worldwide to develop regulatory frameworks for cryptocurrencies and other virtual assets amid increasing use and concerns over risks such as fraud, money laundering, and financial instability. The details of the proposed legislation and the specific regulatory body to oversee implementation have yet to be finalized. However, officials indicated this step aims to balance innovation with consumer protection and financial security.