Resolution
Overview
Resolution refers to a set of actions taken by the Resolution Authority to manage the failure of a financial institution (FI) in an orderly manner to maintain financial system stability, the continuity of critical functions of such FI, protect depositors and minimize the use of public funds.
The objectives of resolution are to ensure that the failure of a licensed FI is managed in a manner that preserves the stability of the financial system while maintaining the continuity of the FI’s critical functions. Resolution seeks to protect public funds by minimizing the need for government financial support, safeguard the interests of depositors and prevent unnecessary destruction of asset value. Overall, the framework aims to facilitate an orderly and efficient resolution process that minimizes systemic disruptions safeguarding the financial system stability.
A sound and stable financial system depends on effective regulation, robust FIs, good governance, well-functioning markets and resilient payment systems. Within this broader stability agenda, the resolution function focuses on preventing, detecting and mitigating threats to financial stability through early intervention and, where necessary, the orderly resolution of failing FIs.
Legal Framework of Resolution
Under the Central Bank of Sri Lanka Act, No. 16 of 2023 (CBA), the Central Bank of Sri Lanka (CBSL) is recognized as the Resolution Authority and is empowered to plan for and implement resolution measures for FIs regulated and supervised by CBSL, provided such actions do not pose a material risk to public funds. The CBA further authorizes CBSL to enter into agreements with foreign supervisors and resolution authorities for information sharing and cooperation in resolution planning and execution.
The detailed resolution framework for Licensed Banks (LBs) is set out in the Banking (Special Provisions) Act, No. 17 of 2023 (BSPA), enacted on 15 September 2023 and effective from 15 November 2023. Pursuant to Section 57 of the BSPA, CBSL issued an Order published in Extraordinary Gazette No. 2432/02 dated 16 April 2025 extending the application of Parts I and II of the Act to Licensed Finance Companies (LFCs) as well. Accordingly, the BSPA provides the statutory foundation for CBSL and, where appropriate, the Government to undertake timely resolution actions when an LB or LFC faces capital, liquidity, insolvency or other risks, with the objective of restoring the FI as a going concern, safeguarding depositors, and preserving overall financial system stability. Section 14 of the BSPA sets out the specific resolution powers of CBSL when resolving an FI. Under this provision, CBSL is empowered to appoint an Administrator to take control of the FI, effect a transfer of its shares, and transfer selected or all assets and liabilities as necessary to ensure continuity of critical functions. CBSL may also implement measures to recapitalize the FI through existing or new shareholders, or, where required, request the Minister of Finance to provide capital for the establishment of a bridge bank. In addition, CBSL may request temporary financial assistance from the Minister to support the resolution process, based on reports submitted by CBSL justifying such intervention.
How does resolution support stability?
- CBSL conducts resolution planning for LBs and LFCs, progressively, so that credible options exist before a crisis occurs.
- When risks emerge (capital, liquidity, insolvency or other), CBSL can implement measures promptly to stabilize and, where feasible, revive the FI.
- Actions aim to safeguard depositors and maintain confidence of the stakeholders on the system as a whole, while avoiding material risk to public funds.
- The framework enables information sharing and coordinated action with foreign supervisors and resolution authorities.
Who comes under CBSL’s resolution authority?
Licensed Banks and Licensed Finance Companies:
CBSL is the resolution authority for FIs in terms of the CBA, while the BSPA also establishes CBSL as the resolution authority for LBs. With the recent extension of the BSPA’s resolution provisions (Parts I and II) to LFCs, CBSL’s resolution framework now formally covers both LBs and LFCs, enhancing the comprehensiveness and consistency of the resolution framework.
Appointing panels of experts
Under the BSPA, CBSL plans and implements resolution measures for LBs and LFCs. To execute these measures efficiently, CBSL forms specialist panels and engages independent experts via Expressions of Interest (EOIs). Panels are established by calling EOIs, technical evaluation and Governing Board approval, with independence re-checked and terms of reference issued for each engagement.
(1)Panel of Independent Professional Valuers
Constituted under Section 16 to deliver prudent, realistic and timely valuations used for determining failing-or-likely-to-fail FIs, assessing resolution options and to test the aspect of ‘No Creditor Worse Off than in liquidation’. Pursuant to Section 16(5) of the BSPA, the Governing Board of CBSL has approved the appointment of a Panel of Independent Professional Valuers for the purpose of carrying out valuations in connection with the resolution of LBs and LFCs with effect from 06.08.2025. Details of the appointed Panel can be obtained from here.
(2)Panel of Administrators (to be appointed)
To be established under Section 18 of the BSPA to provide immediately deployable statutory managers when an FI enters resolution. Appointees stabilize operations, safeguard value, implement the CBSL-approved strategy and report within defined timelines. Selection stresses fitness and propriety, independence and proven leadership, and each appointment includes a clear mandate, deliverables and conflict checks.
(3)Panel of Arrangers (to be appointed)
The Panel of Arrangers will support the CBSL in facilitating resolution transactions by identifying and engaging suitable transferees or bidders. Their role will primarily relate to the use of resolution tools such as the transfer of assets and liabilities, transfer of shares or implementation of mergers, ensuring these processes are conducted efficiently and transparently.
Regulations
This section provides links to Acts, Directions, Regulations, press notices and press releases relevant to resolution of LBs and LFCs.
Acts:
Banking (Special Provisions) Act, No. 17 of 2023
Directions:
29.10.2024 Banking (Special Provisions) Act Directions No. 1 of 2024: Data Templates for Resolution Planning for Licensed Banks
17.09.2025 Banking (Special Provisions) Act Direction No. 01 of 2025: Recovery Plans for Licensed Banks
Circulars:
Gazettes:
16.04.2025 Gazette Extraordinary No. 2432/02 of 16 April 2025: Order made under Section 57 of the Banking (Special Provisions) Act, No 17 of 2023
Press releases:
Press Notices:
Contact us
Address :
D R Karunaratne
Director
Deposit Insurance & Resolution Department
Central Bank of Sri Lanka,
No.30, Janadhipathi Mawatha,
Colombo 01,
Sri Lanka
Telephone : +94112477261
Fax : +94112477748
Frequently Asked Questions (FAQs)