CB reiterates risks of using and investing in cryptocurrency

• Public reminded that cryptocurrencies are unregulated investment instruments which are not recognised as an asset class in Sri Lanka

The Central Bank yesterday reiterated the risks of using and investing in cryptocurrency, considering the recent public inquiries and the developments observed relating to cryptocurrencies, which are also commonly referred to as ‘crypto’. 

“Cryptocurrency is a type of virtual currency that is generated by private entities and not by a monetary authority of a country. The term ‘cryptocurrency’ refers to a digital representation of value that is implemented using cryptography and Distributed Ledger Technology (DLT) or similar technology.

It is observed that crypto trading is widely promoted by certain entities as a profitable investment. However, recent complaints received by the CBSL have shown that the members of the public have incurred heavy losses on their crypto investments and in certain instances, have also been subject to financial scams conducted through crypto-related schemes,” the Central Bank said in a statement.

The Central Bank has already highlighted, through press releases issued in 2018, 2021, and 2022, the significant financial, operational, legal and security-related risks as well as customer protection concerns posed to users of cryptocurrency.  It noted that these risks and concerns have already materialised with the recent failures of various global institutions engaged in cryptocurrency businesses and the collapse and loss of value of some cryptocurrencies. 

“The public is reminded that cryptocurrencies are unregulated investment instruments, which are not recognised as an asset class in Sri Lanka. Further, cryptocurrencies are not considered as legal tender in Sri Lanka and have no regulatory safeguards relating to their usage in the country,” the Central Bank statement said. Meanwhile, the Central Bank pointed out that as per Directions No. 03 of 2021, under the Foreign Exchange Act, No. 12 of 2017, electronic fund transfer cards such as debit cards and credit cards are not permitted to be used for payments related to cryptocurrency transactions. 

It also highlighted that cryptocurrency operates through informal channels and therefore, it does not contribute to the national economy and can also cause a loss of valuable foreign currency to the country. 

The Central Bank also warned of the growing number of financial scams operating with the promise of high returns based on crypto investments. 

“These scams include deceiving individuals and obtaining money from them with the promise of providing a high return by investing money in cryptocurrency as well as deceiving individuals to invest in fraudulent cryptocurrency projects. 

Such scams circumvent traditional regulatory and legal protection mechanisms, resulting in individuals losing their hard-earned money,” the Central Bank said. In this backdrop, it advised the public to safeguard their hard-earned money and not to invest or engage in any cryptocurrency scheme offered through the internet, other forms of media or directly by any persons.  The Central Bank also said it has not issued any licence or authorised any individual or business to operate schemes involving cryptocurrency and has not authorised any Initial Coin Offerings (ICOs) or any variant of it, cryptocurrency mining operations, cryptocurrency exchanges, deposit-taking or custody services related to cryptocurrency or any cryptocurrency investment advisory service.