Introduction: The International Financial Services Centres Authority (IFSCA) has released a significant circular, F. No. IFSCA-IF-10PR/1/2023-Capital Markets/3, dated March 11, 2024, addressing Fund Management Entities (FMEs) and Schemes set up in International Financial Services Centres (IFSCs). This circular aims to provide essential clarifications to Sovereign Wealth Funds (SWFs) facing challenges in establishing FMEs and Schemes within IFSCs, as per the IFSCA (Fund Management) Regulations, 2022.
Detailed Analysis:
1. Regulatory Background: The circular refers to the IFSCA (Fund Management) Regulations, 2022, and a previous circular dated March 01, 2023, designed to alleviate difficulties faced by Sovereign Wealth Funds engaged in establishing FMEs and Schemes within IFSCs.
2. Exemptions for Open-Ended Restricted Schemes: SWFs setting up open-ended Restricted Schemes and other schemes with Assets Under Management (AUM) above USD 70 Million are exempt from the mandatory appointment of an independent custodian (as per sub-regulation 2 and 3 of regulation 132).
3. Relaxation of Office Space Requirement: The circular relaxes the requirement for FMEs to have dedicated, secured, and accessible office space. If the FME and trustee of Schemes in the form of a trust share office space, it’s permissible, provided their services are not extended to third parties.
4. Legal Authority: The circular invokes the powers conferred under sections 12 and 13 of the International Financial Services Centres Authority Act, 2019, read with regulation 146 of the Fund Management Regulations.
5. Immediate Effect: Issued with immediate effect, the circular ensures prompt implementation of the clarified provisions, streamlining the process for SWFs involved in IFSC operations.
Conclusion: IFSCA’s recent circular brings clarity to regulatory aspects affecting Sovereign Wealth Funds establishing Fund Management Entities and Schemes in IFSCs. By exempting certain schemes from custodian requirements and easing office space constraints, IFSCA aims to foster a conducive environment for SWFs within the IFSC landscape. Stakeholders, particularly Fund Management Entities in IFSCs, are encouraged to review the circular for a comprehensive understanding of the clarified guidelines, ensuring smooth compliance with the regulatory framework. The circular’s availability on the IFSCA website enhances transparency and accessibility for all concerned entities.
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INTERNATIONAL FINANCIAL SERVICES CENTRES AUTHORITY
Circular No. F. No. IFSCA-IF-10PR/1/2023-Capital Markets/3 Dated: March 11, 2024
To,
All Fund Management Entities (FMEs) in International Financial Services Centres (IFSCs)
Dear Sir / Madam,
Sub: Clarifications in relation to Fund Management Entities and Schemes set up in IFSCs by Sovereign Wealth Funds
1. Reference is drawn to the International Financial Services Centres Authority (Fund Management) Regulations, 2022 (hereinafter referred to as the “Regulations”), notified in the official Gazette on April 19, 2022, and the Circular dated March 01, 2023, issued thereunder to remove certain difficulties faced by Sovereign Wealth Funds in setting up Fund Management Entities (FME) and Schemes in IFSC.
2. In furtherance to the above, the following is clarified with respect to Sovereign Wealth Funds desirous of setting up FMEs and schemes in IFSC, wherein the Sovereign Wealth Fund is the ultimate contributor and beneficiary:
a. The requirement of appointment of an independent custodian shall not be applicable to open-ended Restricted Schemes and all other schemes with AUM above USD 70 Million [sub-regulation (2) and (3), respectively, of regulation 132 of the Regulations];
b. The requirement of having the office space of the FME to be dedicated, secured and accessible only by authorised person(s) of the FME [sub-regulation (2) of regulation 10 of the Regulations] is relaxed to the extent that the FME and trustee of Scheme(s) set up in the form of trust, may occupy the same office space if their services are not offered to any third-party.
3. This circular is issued in exercise of the powers conferred under sections 12 and 13 of the International Financial Services Centres Authority Act, 2019, read with regulation 146 of the Fund Management Regulations, and shall come into force with immediate effect.
A copy of this Circular is available on the website of International Financial Services Centres Authority at www.ifsca.gov.in.
Yours faithfully
Sd/-
Pavan Shah
General Manager
Division of Investment Funds – I and New Products & Services
Capital Markets Department
Email: pavan.shah@ifsca.gov.in
Tel: +91-79-61809844
