Central Bank takes umbrage over former ICTA CEO Canagey’s claims

Sri Lanka’s Information and Communication Technology Agency (ICTA) appears to have ignored a request from the Central Bank (CB) made more than a year ago – in mid-2016 – for details of the controversial National Payments Platform (NPP) even though the banking regulator is the authority under which such a mechanism must function.

While ICTA CEO and Managing Director Muhunthan Canagey quit on Friday, August 11 in a furore over the NPP and related matters, the CB has been raising concerns over the ICTA role in NPP for several months, saying it should be properly regulated and cannot operate independently as sought to by the ICTA.

The CB issued a strong statement on Tuesday challenging assertions from Mr. Canagey over the NPP but the banking regulator also appeared to be contradicting its own statements made earlier.

On Tuesday the CB said it had requested more information about the NPP when it was presented on May 13, 2016 at the Central Bank, and the request was made in order to gather details on system development, operation manuals, system security, compliance with system standards and the external system audit framework. “This request was made in an attempt to gather further knowledge regarding the NPP, so that the CB could make an informed decision on its feasibility. However, there has been no response regarding these concerns from ICTA, to date.Therefore, the CB is not in a position to comment on the viability of the NPP in the absence of a response from ICTA, as the concerns raised have an impact on customer, transaction and information security,” the statement said.

However in an August 2016 story, the Business Times quoted CB Governor Indrajit Coomaraswamy as telling reporters that the regulator will examine every detail in the NPP before giving the go-ahead. He added that Deputy Governor P. Samarasiri, under a cloud over his close association with former Governor Arjuna Mahendran and the Treasury bond scam, had been appointed to oversee the implementation of the NPP.

It was unclear whether Mr. Samarasiri had pursued the matter or held discussions with ICTA officials. The NPP was seen as the ‘baby’ of Mr. Canagey who faced accusations that ICTA was overstepping its boundaries by not operating the platform under the direct supervision of the Central Bank.

The under-fire ICTA CEO said he was resigning at the behest of President Maithripala Sirisena, who had been informed as such by Minister of Telecommunication and Digital Infrastructure, Harin Fernando. Details of his resignation and reasons were unusually revealed in an ‘open letter’ on the CEO’s Facebook page. The Minister, in comments made to a newspaper, rejected the claim saying at no time had the President made such a request.

The former CEO raised a few eyebrows last month when a media release was issued saying that a company that he had founded named Duo World had listed its shares on the New York OTC Markets. In that company, his name was given as “Muhunthan Canagasooryam”. (See picture above)

Tuesday’s statement was a response from the CB to what it perceived as inaccurate statements by Mr. Canagey.

“We wish to explain that the NPP or any payment platform needs to be regulated as is done in other parts of the world, since they significantly impact the financial stability of a country. The regulator’s role is important to ensure that the platform and associated systems contain the required security Department of Payments and Settlements measures to protect the interests of the public and to maintain the stability of the financial system as a whole,” the CB statement said.

The CB said it was committed to the further development of payment systems in the country and had no intention of hindering the promotion of digitisation of the economy, a claim made by Mr. Canagey.

“I will never be part of aiding and abetting any fraud or corruption or delay in any implementation of digitalisation of Sri Lanka,” the former ICTA CEO’s letter had said.

Interestingly while Mr. Canagey says on his post that the resignation “comes after I questioned on the issuing of spectrum worth US$25 million to Maharaja’s during the current president’s term of office without any public auction or tender. The spectrum should have been used for digitisation”, the open letter has no reference to this allegation.

The NPP has been steeped in drama with the former CEO backed by former Finance Minister Ravi Karunanayake in the former’s endeavour to push through the NPP sans CB sanction.

In its earlier August 2016 story on the issue, the Business Times said that it found that in September 2015, Transact Lanka (Pvt) Ltd, a mobile payments and funds transfer service provider, was awarded a contract by ICTA to develop the new payments platform which would enable Sri Lankans to make cash payments for all government related payments including Customs duties, port charges, revenue license, taxes, etc.
While there is no record of an ICTA announcement in September, Transact Lanka issued a media statement on September 9, saying: “ICTA has awarded and granted it permission to operate the Lanka Government Payment Service (LGPS) Web Portal to enable citizens to make cash-based payments for all government related payments”.

The newspaper report said Transact Lanka had said this service is due to be launched in 1Q/2016 (between January-April). It was the 2016 budget presented in November 2015, two months after a developer was appointed, that spoke of “the introduction of the National Payment Platform (NPP) enabling the public to transfer funds from any of their bank accounts through the mobile phone for the payment of goods and services using their NDI. The National Payment Platform will bring in savings for the government by increasing efficiency thereby reducing cash movement and the cash float in the market,” the paper reported.

On July 12, 2016, 10 months after ICTA had found a developer for the NPP, the cabinet approved the “introduction of a NPP to facilitate digital commerce and online transactions”. The ICTA was directed to implement the NPP with the CB facilitating its implementation. The Business Times then asked: “What was the process of selection of Transact Lanka; were tenders called; who were the other bidders; was the CB involved in the selection of Transact Lanka, if not why; were some the questions raised by sections of the IT community.” An analyst was quoted as saying, “How was the developer of this platform already selected if cabinet approval was given in July 2016 on a budget proposal made in November 2016?”

Asked for a response at that time, Wasantha Deshapriya, Secretary of the Ministry of Telecommunication and Digital Infrastructure, said the selection was made after bids were called by ICTA. He said while the CB was not involved in the process initially, some adjustments were being now made on the directions of the CB, though the latest ‘missile’ from the banking regulator implies that it was not involved at all in the NPP.
The CB release on Tuesday further said:

“It has been also stated in the press that the NPP is primarily a platform for messaging which may include a payment request. However, the CB wishes to emphasize that services such as payment messaging, will also fall under the scope of a payment transaction, and therefore be subject to regulation by CB. Further, as the NPP constitutes an amalgamation of payments and settlement systems, it will inherently need to be under the regulation and supervision of CB.

“For regulatory purposes, the CB designs policies and implements them at the national level to facilitate the overall stability of the entire financial system by promoting safety, accuracy and efficiency of the payment system, and controlling the associated threats. The CB strongly believes that in order to implement a digital economy, it is important to encourage innovations. However, it is also important to adhere to the prevailing regulations in order to maintain and promote a secure, efficient and effective payment system environment for the long term sustainable development of the nation. Accordingly, the Central Bank will continue to maintain the integrity of the payment system to ensure the economic growth of the country through a stable financial system.”