Central Bank to regulate Informal Money Transfer Systems
The Central Bank has taken steps to regulate informal money transfer systems including Undial and Hawala to ensure financial stability and prevent illicit activities.
The Undial and Hawala systems are informal, trust-based methods of transferring money, common in South Asia and West Asia.
They offer speed and cost-effectiveness but lack transparency, raising concerns about money laundering and illegal activities. Governments seek to regulate these systems.
The monetary authority has introduced measures to regulate informal money transfer systems to ensure financial stability and curb illicit activities.
Officials informed the Committee on Public Finance (COPF) at a meeting chaired by Dr. Harsha de Silva, MP in parliament on January 7 that operators of Undial and Hawala have been requested to register with the Central Bank and if anyone wishes to operate afresh, such persons must register prior to conduct operations.
This initiative seeks to enhance transparency, reduce risks tied to unregulated financial transactions, and integrate these operators into the formal financial system, a senior official Ministry of Finance explained.
Dr. de Silva told parliament that “the Hawala and Undial systems are not illegal in the country, but they are not regulated in any way. Therefore, a proposal has been made requiring those who conduct international transactions through these systems to register byl May 2025,”
Despite their risks, Hawala and Undial systems are valued for their ability to facilitate rapid, low-cost transactions, particularly in remote areas with limited banking infrastructure.
While Hawala and Undial are not illegal in Sri Lanka, their lack of regulation has drawn concern due to risks of money laundering and terrorist financing.
The Central Bank (CB) has highlighted issues such as anonymity and absence of documentation, which can facilitate illicit financial activities.
By enforcing a registration process, these systems will be integrated into the legal financial framework, ensuring greater accountability.
According to a CB report, informal money remitters, particularly those using Hawala and Undial, represent a high risk for money laundering in Sri Lanka. Real estate agents, banks, and finance companies were identified as medium-high risk sectors.
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