Central Bank Clears Ernst & Young to Continue Auditing Licensed Banks Despite NDB Fraud Fallout

The Central Bank of Sri Lanka (CBSL) has confirmed that Ernst & Young Sri Lanka (E&Y) remains a qualified and eligible auditor for licensed banks in the country, following scrutiny of the firm in the wake of an internal fraud uncovered at National Development Bank PLC (NDB).

Background to the Controversy

The matter came to light after NDB disclosed an internal fraud within the institution, prompting the CBSL to take a closer look at the auditing arrangements associated with the bank. In response, the Central Bank moved swiftly to address concerns surrounding the specific personnel involved in the audit process.

As part of its supervisory action, the CBSL formally requested Ernst & Young Sri Lanka to refrain from assigning any new audit engagements of licensed banks to the Engagement Partner and the Quality Assurance Partner who had been connected to the NDB audit.

Firm's Overall Standing Remains Intact

Crucially, the regulator has drawn a clear distinction between the conduct of specific individuals and the standing of the firm as a whole. The CBSL has stressed that Ernst & Young Sri Lanka itself continues to hold its status as an approved and qualified external auditor for licensed banks operating under the Central Bank's regulatory purview.

This clarification is expected to provide reassurance to the broader banking sector and to clients of the firm, signalling that regulatory action has been carefully targeted rather than applied as a blanket measure against Ernst & Young as an institution.

Regulatory Oversight in Focus

The development underscores the CBSL's commitment to maintaining rigorous audit standards across Sri Lanka's licensed banking sector. By isolating the roles of the implicated partners rather than penalising the entire firm, the Central Bank has demonstrated a measured and proportionate regulatory response.

The NDB fraud case continues to draw attention to the importance of robust internal controls and independent audit quality within Sri Lanka's financial institutions, as regulators and industry stakeholders alike face growing pressure to strengthen governance frameworks across the sector.