This Financial Sector Assessment (FSA)is based on the work of the joint World Bank and IMFFinancial Sector Assessment Program (FSAP) update team thatvisited Sri Lanka between June 20 and July 3, 2007. Theprincipal objectives of the FSAP Update were to: (i) assessdevelopments in the financial sector and progress instrengthening financial sector regulation since 2002; and(ii) identify measures that would contribute toconsolidation of financial stability and to furtherdevelopment of the financial sector over the next fiveyears. This report describes the main findings of the 2007FSAP update addressing bank and non bank financialinstitutions, state bank restructuring, pension funds,insurance, capital markets, supervisory framework, access tofinance, and legal and judicial reforms. This reportsummarizes the recommendations for sustaining financial development.