Delivering the Budget speech in Parliament in November last year, Finance Minister Ravi Karunanayake first revealed plans to set up Sri Lanka’s first financial centre – the Colombo International Financial Centre (CIFC). This he said will be built on a 300,000 square feet specific zone along D R Wijewardena Mawatha on the lines of the Dubai International Financial Centre (DIFC) and such other off-shore centres around the world.
The Finance Minister in his speech also invited domestic and international banks to operate in Sri Lanka and be part of the proposed centre slated to be operational by April 1, 2016 and informed the House that the initiative would require an investment by the government which includes special physical and digital infrastructure, human capital, regulatory and the legal infrastructure.
How would this function?
According to informed sources, the plan is still on the drawing board. However, Nation recently asked the Governor of the Central Bank of Sri Lanka, Arjuna Mahendran on his opinion on the proposal and to provide us with some details as to how the upcoming CIFC would function. And here’s what he said.
“I think in Sri Lanka we need to explore this because you must remember that we have very strong taxation laws and Customs laws and such like, which discourage foreign investors and banks and other type of services from coming and doing business here.
And as I said over the years, the size and scale of the government has got very large in Sri Lanka. So in order to free up some space for investors and even some Sri Lankans who want to be unshackled in the government interference in their activity, it is a good time to have an offshore type of a centre,” Mahendran said in an exclusive interview .
Lenient laws to attract investors
The Governor also disclosed that Sri Lanka is planning to set up special commercial courts at the proposed centre in which laws for commercial disputes could be applied more lightly with a view to expedite justice and attract investment.
Explaining further, the Central Bank governor pointed out that one of the issues Sri Lanka faced was that commercial disputes took a long time to be resolved in courts leading to concerns about protracted litigation thus discouraging business activity.
“This is something that is done in Dubai very effectively at the Dubai International Financial Centre, where they have special courts in which issues arising within that area are resolved by their own courts independently of the normal courts in the rest of the country. So similarly in Sri Lanka, if we can have a system where justice is expeditious, where cases are resolved expeditiously without any delays, I think it will be a big attraction to business,” Mahendran said although assuring that it will however have Sri Lankan jurisdiction where the ultimate authority will be the Supreme Court of Sri Lanka.
The Governor said that as far as commercial disputes are concerned, one area Sri Lanka needed to work on was arbitration where Sri Lanka has not developed effectively and those could be explored at the upcoming offshore Centre.
The Dubai model
The DIFC is a federal financial free zone situated in the Emirate of Dubai and occupies a physical territory of about 110 acres. The DIFC is an independent jurisdiction under the UAE Constitution, with its own civil and commercial laws distinct from those of the wider UAE and is governed by the DIFC Authority. The DIFC also has its own courts, with judges taken from leading common law jurisdictions including England, Singapore and Hong Kong.
Regulations to be passed
Meanwhile, Deputy Minister of Public Enterprise Development Eran Wickramaratne said that as Sri Lanka already had a very strong legal system, there would not be a requirement for two legal systems like in Dubai’s DIFC, although some regulations had to be passed in Parliament.
“There won’t be necessity to amend the laws. However, there are a lot of practical issues that are currently being put in place. Banks are in touch with the Finance Ministry,” the Deputy Minister said.
Wickremaratne said the government has been looking at international practices and how the other centres operated and they will only act after consultation with the international banks operating in the island.
“Some regulations will be passed, for example, like banks now have to have a capital requirement, the regulation will also specify the range that it could be done. In Dubai, there are limitations to what can be done and I believe in Sri Lanka’s situation they will be given lot more room to operate,” the Deputy Minister said.