The Central Bank of Sri Lanka has issued new directions on liquidity risk management for finance companies licensed under the Finance Business Act, setting out key principles and minimum requirements for a sound liquidity risk management framework. The directions require finance companies to establish an integrated approach covering liquidity strategy, policies and procedures, governance, and processes to identify, measure, monitor, report, control, and mitigate liquidity risk. The framework must reflect the nature, size and complexity of each firm, including its business model, risk profile, products, customer profile, off-balance sheet exposures, geographic coverage and operating currencies. Requirements include forward-looking liquidity strategies, internal reporting to the Board of Directors, Board Integrated Risk Management Committee and Asset and Liability Committee, quarterly (or more frequent) liquidity stress testing, and a formal contingency funding plan with defined responsibilities and escalation and invocation procedures; firms must also set and monitor prudential liquidity limits, escalate breaches, and subject the framework to independent reviews. The directions introduce stakeholder disclosure expectations through annual reporting or firm websites and require key liquidity indicators to be included in quarterly and half-yearly financial statements, while boards must report material liquidity developments to the Director of the Department of Supervision of Non-Bank Financial Institutions. Finance companies with assets of LKR 100 billion and above must comply from 1 April 2026, with firms below LKR 100 billion required to comply from 1 April 2027.

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