Introduction: The International Financial Services Centres Authority (IFSCA) recently issued a circular aimed at enhancing the ease of doing business within the International Financial Services Centre (IFSC). This circular addresses concerns raised by market participants regarding the settlement of client funds by Broker Dealers.
Detailed Analysis:
1. Current Practice: Presently, Broker Dealers operating within the IFSC are obligated to transfer unutilized funds back into clients’ accounts based on the ‘Running Account Settlement’ mandate. However, this necessitates settlements at regular intervals, typically every 30 or 90 days, as per the client’s preference.
2. Representations Received: IFSCA received feedback from various stakeholders, including investors and market institutions, highlighting the challenges associated with frequent settlements. These challenges predominantly revolved around the costs incurred in remitting funds.
3. Decision and Implementation: In response to the feedback received, IFSCA has decided to streamline the process of fund settlement to facilitate ease of doing business within the IFSC. The key points of this decision include:
- Settlement of funds will now align with the Agreement/Consent Letter between the Broker Dealer and the client, unless specified otherwise by IFSCA.
- The format of the Agreement/Consent Letter will be specified by the Stock Exchanges in IFSC for Broker Dealers to adhere to.
- New clients will be required to execute this Agreement/Consent Letter during onboarding, while existing clients will undergo a transition procedure to implement the new settlement process.
- Stock Exchanges within IFSC will establish monitoring mechanisms to oversee clients’ funds held by Broker Dealers.
Conclusion: The issuance of this circular by IFSCA signifies a proactive approach towards fostering a conducive business environment within the IFSC. By addressing concerns related to the settlement of client funds, IFSCA aims to promote efficiency and reduce operational burdens for market participants. This decision reflects IFSCA’s commitment to regulatory adaptability and responsiveness to the evolving needs of the financial services industry within IFSC.
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International Financial Services Centres Authority
Circular No. IFSCA/CMD-DMIIT/SOF/2023-24/001 Dated: March 14, 2024
To,
All the Stock Exchanges in the International Financial Services Centre (IFSC) All the Broker Dealers in the International Financial Services Centre (IFSC)
Dear Sir/Madam,
Sub: Ease of doing business: Settlement of Client’s Funds lying with Broker Dealer
1. Presently, Broker Dealers in IFSC are required to transfer the unutilized funds back into client’s account in the specified time depending on the mandate of the client (‘Running Account Settlement’). However, the gap between two such settlements must not be more than 30/90 days (as per choice of client viz. Monthly/Quarterly).
2. IFSCA has received representations from various market participants – both investors and market institutions – regarding doing away with the requirement of such monthly /quarterly settlement due to cost of remittance of funds.
3. With an objective to promote ease of doing business in IFSC and taking into account the representations from investors and discussions with the Stock Exchanges, the following has been decided:
i) Unless otherwise specified by IFSCA, settlement of funds shall be done as per the Agreement/Consent Letter between the Broker Dealer and its client. The Stock Exchanges in IFSC may specify the format of such Agreement/ Consent Letter for the Broker Dealers.
ii) Such an Agreement/Consent Letter needs to be executed between the Broker Dealer and the Client at the time of onboarding itself.
iii) In case of existing clients, the Broker Dealers in IFSC may adopt a procedure to operation alize the same.
iv) The Stock Exchanges in IFSC shall put in place a mechanism for monitoring clients’ funds lying with the Broker Dealers.
This circular is issued in exercise of powers conferred by Section 12 of the International Financial Services Centres Authority Act, 2019 to develop and regulate the financial products, financial services and financial institutions in the International Financial Services Centres.
A copy of this circular is available on the website of the International Financial Services Centres Authority at www.ifsca.gov.in.
Yours faithfully,
Praveen Kamat
General Manager
Division of Market Infrastructure Institutions and Technology
Capital Markets Department
email: praveen.kamat@ifsca.gov.in
Tel: +91-79-61809820
