Sri Lanka central bank completes blockchain-based KYC proof of concept

In recent years, the Central Bank of Sri Lanka (CBSL) has warned citizens about digital currency transactions. The central bank of Sri Lanka believes that virtual currencies such as digital currencies are dependent on speculation, which makes them highly volatile and exposes the investors to the risk of losing large amounts of money.

According to reports, the central bank also said that there is a “high likelihood of VCs being associated in financing terrorist activities and used by criminals to launder criminal proceeds.”

In addition, the purchase and trading of digital assets like BTC is a violation of Foreign Exchange Regulations and Electronic Fund Transfer Cards (EFTCs). Besides, credit cards and debit cards are not allowed to be used for payments related to virtual currency transactions in the country.

The Central Bank of Sri Lanka issued a warning about the risks related to digital currencies in 2018. Yet, there has been a spike in digital currency trading and investing in the country since the recent economic uncertainties due to the pandemic. 

Earlier this year, the central bank also emphasized that it has not given any license or authorization to any entity or company to operate schemes involving virtual currencies, nor has it authorized any ICOs, mining operations or virtual currency exchanges.

The Know-Your-Customer blockchain-based platform

The Central Bank of Sri Lanka recently presented a report to Sri Lankan central bank governor Ajith Nivard Cabraal on completing the Know-Your-Customer (KYC) proof-of-concept (POC) project. The project started in July 2019 and completed the development and testing of the experimental platform as of June 10, 2021.

The project included three collaborators who developed the blockchain-based KYC POC platform concept.

Ten regional and international commercial banks such as Commercial Bank of Ceylon, Cargills Bank, Amana Bank, DFCC Bank, Standard Chartered Bank, Hatton National Bank, etc., have successfully tested the KYC POC.

D. Kumaratunge, the central bank director for payments and settlements, said in a statement: “We invited software companies to develop a shared KYC POC free of charge, as a national project. The response to join this project, both locally and internationally, has been extremely heartening and we are happy to say that we have finalized selecting suitable applicants to begin development shortly.”

The project was under the Vistas of Prosperity and Splendor, an initiative of the Sri Lanka government. There has been increased interest in digital currency and hence the government’s new exploration into KYC technology in Sri Lanka.

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