Compliance Symposium 2025: Experts weigh AML and fraud detection strategies

• CBSL Governor Dr. Nandalal Weerasinghe calls on banks to tighten controls in preparation for AML/CFT framework evaluation
• Emphasises that the country has already experienced two negative AML/CFT assessments in 2006 and 2014
• Assures stakeholders, however, that a Mock Assessment will be conducted to ensure preparedness
• FIU Director Keerthiratne describes the FIU’s collaboration with local law enforcement agencies as key to fraud detection
• Dept. of Supervision of Non-Bank Financial Institutions Director Jayasinghe praises FIU’s measures while acknowledging the need for strengthened accountability mechanisms within financial institutions
• Opines that finance companies need increased technological integration
• NTB Chief Digital Officer Boteju notes that financial crimes are primarily overseas scams
• Lists customer education, staff training on biometrics, and tightened internal controls as key mitigation strategies to be considered

By Janani Kandaramage

The Compliance Symposium 2025 hosted by the Association of Compliance Officers of Banks in Sri Lanka (ACB) in Colombo last week discussed and deliberated the dynamic nature of banking transactions, digital threats to systems, and the pressing need for strengthening combat against financial crime.

Building on the success of previous symposiums, the event served as a valuable platform for knowledge exchange, skill development, and networking among compliance professionals. The symposium was graced by Central Bank of Sri Lanka (CBSL) Governor Dr. Nandalal Weerasinghe, prominent CBSL officials, and both local and foreign finance experts. 

Weerasinghe called on the banking sector to promptly tighten controls in preparation for Sri Lanka’s third Anti-Money Laundering and Counter-Terrorism Financing (AML/CFT) framework evaluation. He warned that a ‘grey listing’ in the assessment can deter foreign investment, trade, and lead to restricted access to international financial systems, hindering economic progress.

“Sri Lanka is an active member of the Asia/Pacific Group on Money Laundering (APG), and a negative listing by this organisation could have serious financial repercussions to the country,” he stated. “For instance, strained banking relations as a result of increased global scrutiny on Sri Lankan customers and skyrocketing borrowing costs could lead to reputational damage. Therefore, given this situation, Sri Lanka must demonstrate a strong performance based on a high level of technical compliance and effectiveness at the upcoming evaluations,” he added.

He emphasised that the country has already experienced two AML/CFT assessments in 2006 and 2014, both of which resulted in the country being labelled a ‘jurisdiction with strategic deficiencies.’ 

“When we underperformed at the first two assessments, we faced severe economic and financial consequences. It is therefore the CBSL and commercial banks’ duty to not let this phenomenon repeat. Banks will have a major role to play in improving risk control mechanisms to prudent levels and ensuring high compliance levels in flagging and reporting high-quality dubious transactions.”

Significance of mock evaluation and future amendments 

The CBSL Chief also announced the commencement of a mock evaluation in March 2025, to be conducted by the renowned international AML/CFT expert Dr. Gordon Hook to assess stakeholder preparedness. Assessing stakeholder preparedness is fundamental to capacity building, risk mitigation, effective resource allocation, and wider stakeholder involvement. President Anura Kumara Dissanayake along with other senior authorities in Sri Lanka’s anti-money laundering task force, will be briefed on the on the mock evaluations by an APG delegation led by the Japanese Co-Chair, expected to visit Sri Lanka next month.

In the present, however, he assured stakeholders that several efforts have been undertaken by the Financial Intelligence Unit (FIU) of the CBSL to ensure the country’s preparedness for the mock evaluation. These steps include finalising an updated National Risk Assessment (NRA) scheduled for publication in June 2025, implementing the second National Policy AML/CFT and developing institution-specific action plans in alignment with APG requirements.

In addition, the Central Bank has proposed several amendments to the Prevention of Money Laundering Act, the Financial Transactions Reporting Act, and the Convention on the Suppression of Terrorist Financing Act, according to the Governor. The Banking Act of 2024 incorporates two important amendments: it prohibits companies from using shell banks in their transactions and requires increased transparency in ownership structures. These amendments, he believes, will secure the integrity of Sri Lanka’s financial system while aligning with international standards and reducing financial crime.

The presentation was followed by a distinguished panel moderated by LankaPay CEO Channa de Silva. Featuring speakers such as Financial Intelligence Unit Director W.G.S.S.J. Keerthiratne, Payment and Settlements Department Director K.V.K. Alwis, and Department of Supervision of Non-Bank Financial Institutions Director R.M.C.H.K. Jayasinghe – the panel’s key focus revolved around emerging financial crime and fraud risks and regulatory expectations.

Role of Financial Intelligence Unit (FIU)

Keerthiratne reiterated the urgent necessity of addressing financial crime and fraud risks, highlighting the steps taken by the FIU to alleviate this crisis. She called bribery, corruption and cybersecurity offences as the most prevalent within Sri Lanka’s financial sphere.

“FIU initiatives, in a nutshell, involve identifying, analysing and understanding major risks such as money laundering and terrorist financing. We have primarily strived to follow this practice through effective utilisation of AI, where we utilise databases to flag suspicious accounts and the know-how of technology experts to uncover schemes. The FIU analyses transaction data to detect patterns indicative of illicit activities, such as structuring deposits to avoid reporting thresholds. In this coordinated effort and shared responsibility we are working with around 66 private and public financial institutions to enforce this action plan devised,” she commented

She also emphasised the FIU’s continuous commitment to collaborating with local law enforcement agencies to conduct comprehensive investigations, using financial data to trace the flow of funds and identify involved parties. 

Digitisation

Jayasinghe praised the FIU’s measures while acknowledging the need for strengthened accountability mechanisms within financial institutions. He stressed the existence of a knowledge gap in compliance officers over the use of AI, noting that it hinders effective technological integration and therefore regular review of transactions in a seamless manner. Enhancing digital training seminars, he asserts, will equip officers with the necessary skills required in navigating a world where financial crime is increasingly committed via digital resources. 

The Payments and Settlement Director responded to concerns over regulatory changes designed to enhance digital payment infrastructures, claiming that the CBSL’s updating the Payment and Settlement Systems Act to strengthen oversight, supervision, and regulation of payment systems. This includes revising subsidiary legislation, such as the Guidelines on Minimum Compliance Standards for Payment-related Mobile Applications, to support the rapid expansion of retail digital payments. He also spoke of their commitment to creating an inclusive digital payment ecosystem via the Government Digital Payment Platform (GDPP), operational since February, enabling government institutions without digitised databases to receive real-time payments from the public through internet banking portals and mobile payment apps. “As we advance, regulatory alterations will be made accordingly. These regulatory changes will further our aim in creating a secure, efficient, and inclusive digital payment ecosystem fostering public trust,” he stated.

Threats to local financial sphere and role of AI 

The second presentation featured Nations Trust Bank Chief Digital Officer Randil Boteju dissected further strategies for mitigation while acknowledging the steep surge in cybersecurity crimes.

The Digital Officer emphasised the urgent need in merging AI with human capabilities in financial institutions as a means of facilitating efficiency while encouraging human judgement. He cited that this will trigger benefits including operational efficiency, financial inclusion, cost saving, enriched customer experience, and greater access to financing.

Speaking about the current risk landscape in Sri Lanka, he said that threats are primarily posed from overseas-ranging from identity threats, credential risks, impersonation fraud, and SIM swap fraud. “Out of all banking transactions done annually, less than 1% are digitised. This is problematic as we cannot tackle crime committed by AI with A4 paper,” he opined

Risk mitigation strategies

Speaking about prevention strategies, he highlighted the necessity for focus on customer education, staff training on biometrics, and tightened internal controls that ensure prompt compliance and precision in risk assessment. “These fraud monitoring tools are what we must work towards if we are to truly eliminate the cybersecurity challenges we experience,” he remarked. 

“In addition, prioritising incident response protocols is a crucial remedy to immediate crisis management. This, and data protection policies to customers sharing sensitive information are the necessary safeguards we need to avert customer exploitation,” he added.

- Pix by Lasantha Kumara