The 2026 education reforms in Sri Lanka require a paradigm change towards competency-based formative assessment (FA) as opposed to summative assessment, which is examination-based. But policy documents are not built into a solid pedagogical structure that can support this transition and would be at risk of implementing it superficially. This review conceptualizes recent empirical developments (2024-2026) in Self-Determination Theory (SDT) and research in the field of formative assessment to fill this gap. Three major contributions are presented by us. First, by combining a dual-process SDT model, we posit that the motivational power of FA is not only based on the support of autonomy, competence, and relatedness, as well as the active prevention of controlling, chaotic, or rejecting teaching behaviors, a difference that has far-reaching implications for intervention design. Second, we generalize findings of recent intervention studies that SDT-congruent FA practices are strongly associated with better learner attitudes and achievement, but with mediators of teacher assessment literacy. Third, we situate our findings in the specific implementation context of Sri Lanka, consisting of large classes, resource inequality, and an established exam culture, to suggest a context-sensitive, tiered implementation plan and a research agenda in the future. We are able to conclude that to make the 2026 reforms deliver on its transformative potential, FA needs to be applied not as a peripheral method but as an overhaul of pedagogy, which is based on the principles of SDT and grounded in ongoing and practice-based professional development grounded in teacher assessment literacy.