International Financial Services Centres Authority (IFSCA)[1] is the unified regulator for the development and regulation of financial products, financial services and financial institutions in International Financial Services Centres (IFSCs) in India.
The Government of India established the International Financial Services Centres Authority (IFSCA) on April 27, 2020 as a statutory body under the IFSCA Act, 2019. It is headquartered in GIFT City, Gandhinagar, in Gujarat. The Authority operates as a unified regulator, wielding the powers of RBI, SEBI, IRDAI, and PFRDA to oversee financial services, financial products, and financial institutions in the international financial services centres within the country. The primary objective of the IFSCA is to develop a strong global connection, focus on the needs of the Indian economy, and serve as an international financial platform for the entire region and the global economy as a whole.
In the last 3 years, IFSCA has notified nearly 40 regulations and frameworks for enabling various financial services businesses including banking, funds, insurance, capital markets, fintech bullion exchange, etc. By the end of 2023, funds managed by GIFT IFSC had invested $2,769 million in India. This represents most of the funds they raised. GIFT IFSC has seen a rise in the number of funds registered there.[2] This article delves into the intricacies of the International Financial Services Centres Authority.
KEY ROLES AND RESPONSIBILITIES OF IFSCA
The role of IFSCA is to regulate financial services in IFSCs. It ensures that the financial institutions operating in IFSCs comply with the regulations, guidelines, and standards set by the authority.
Regulation and Supervision: IFSCA regulates financial institutions, intermediaries, and financial products within the IFSCs, ensuring they adhere to international standards.
Development and Promotion: It promotes the development of financial services and products, aiming to enhance India’s competitiveness as a global financial hub.
Innovation and Technology: IFSCA encourages the adoption of innovative financial technologies, fostering a modern and efficient financial ecosystem.
Integrated Regulation: Unlike traditional financial regulation in India, which is segmented across various regulators (RBI, SEBI, IRDAI, and PFRDA), IFSCA provides a unified regulatory approach within the IFSCs.
PROCESS OF REGISTRATION IN IFSCA:[3]
1. Initial Engagement:
Contact Development team at development@ifsca.gov.in
Gather information or request a presentation
Optionally schedule a VC meeting
2.Understand Regulations:
Obtain an overview of tax and business regulations
3.Decision to Apply:
Contact the relevant regulatory team via email
Subject Line: Application Business Vertical IFSC Entity Name
CC: Relevant division
4.Submit Application:
Email application to applications@ifsca.gov.in
Use appropriate subject line and CC relevant division
5.Follow-Up:
Wait for regulatory team contact within 7 working days
6.Decision Making:
IFSCA aims to decide within 45 days
Contact Chairperson for issues
7.Compliance:
Regularly review regulations on the IFSCA website
8.Fee Structure:
Refer to the Fee circular on the IFSCA website
BENEFITS OF REGISTRATION WITH IFSCA:
Tax Incentives:
- Companies registered under IFSCA in GIFT City enjoy several tax benefits, including exemptions on capital gains, and reduced corporate tax rates.
Ease of Doing Business:
- Simplified regulatory framework and streamlined processes reduce the bureaucratic burden, making it easier and faster to set up and operate businesses.
Access to Global Markets:
- Firms can access international markets more effectively, leveraging the strategic location and regulatory support of the IFSC.
High-Quality Infrastructure:
- GIFT City offers state-of-the-art infrastructure, including world-class office spaces, data centres, and robust connectivity, supporting efficient business operations.
Regulatory Support:
- IFSCA provides robust regulatory support, including guidelines and frameworks that align with global best practices, ensuring transparency and stability.
Opportunities for Innovation:
- The authority encourages financial innovation, offering opportunities for fintech firms, startups, and established financial institutions to develop and test new products and services.
DIFFERENTIATING SEZ (SPECIAL ECONOMIC ZONE) AND IFSCA
| FOCUS | LOCATION | REGULATION | BENEFITS | WHO CAN PARTICIPATE |
| Exports & Foreign Investment | Multiple Locations | SEZ Act & Multiple Regulators | Tax Exemptions & Streamlined Regulations | Domestic & Foreign Companies |
| Financial Services | GIFT City, Gujarat | IFSCA Act (Single Regulator) | Tax Exemptions & Global Access | Primarily Foreign Companies |
WHETHER AN ENTITY REGISTERING WITH IFSCA HAVE TO FOLLOW BOTH IFSCA AND SEBI OR RBI RULES AND GUIDELINES?
Yes, entities registering with IFSCA in the GIFT-IFSC need to follow the rules and guidelines issued by RBI and SEBI, in addition to IFSCA regulations:
1.IFSCA has allowed SEBI-registered non-bank entities to issue derivative instruments with Indian securities as underlying in GIFT-IFSC. However, these entities must ensure compliance with SEBI and IFSCA requirements on issuance of Offshore Derivative Instruments (ODIs).[4]
2. SEBI (IFSC) Guidelines, 2015 specify the securities that can be traded in IFSC, including index-based derivatives and other securities specified by SEBI.[5]
3. SEBI registered intermediaries operating in IFSC must provide services to eligible clients as per FEMA regulations and RBI guidelines.
4. Portfolio managers in IFSC are permitted to invest in securities listed in IFSC, issued by companies in IFSC or India, subject to RBI and Government of India guidelines.
5. Domestic and foreign companies raising capital in IFSC must comply with the relevant provisions of FEMA, Companies Act 2013, and SEBI ICDR Regulations.
6. RBI’s Overseas Investment rules apply to overseas investment by Indian entities in IFSC. Resident individuals can invest in IFSC within the Liberalized Remittance Scheme limit
General Rule:
For most entities registering with IFSCA, complying with IFSCA regulations is sufficient. IFSCA’s framework is designed to govern financial activities within the IFSC, offering a streamlined regulatory environment.
Additional Points:
- FEMA (Foreign Exchange Management Act) regulations may also apply depending on the activity and entity type.
- RBI’s Overseas Investment rules might be relevant for overseas investments by Indian entities in the IFSC.
Exceptions to the Single Regulatory Framework of IFSCA:
While IFSCA acts as the primary regulator for financial activities within the GIFT-IFSC, there are some exceptions where SEBI and RBI regulations might still apply:
Specific Activities: Certain activities within the IFSC, like issuing derivative instruments with underlying Indian securities, might require compliance with both IFSCA and SEBI regulations. (e.g., SEBI guidelines specify tradable securities within the IFSC).
1. SEBI/RBI Registered Entities: If an entity already registered with SEBI or RBI seeks to operate within the IFSC, they would likely need to register with IFSCA for their IFSC operations while potentially maintaining their existing SEBI/RBI registrations.
2. Domestic Market Activities: An IFSC entity conducting activities that also occur in the domestic market might need to comply with relevant SEBI or RBI regulations for those specific domestic activities.
By understanding these exceptions, entities can ensure they adhere to the correct regulations for their specific activities within the GIFT-IFSC.
CONCLUSION
The International Financial Services Centres Authority (IFSCA) plays a pivotal role in establishing GIFT City as a global financial hub. As the unified regulator, IFSCA offers a streamlined and efficient framework for setting up and operating financial institutions within the IFSC.
This article has provided a comprehensive overview of IFSCA, including its key functions, the registration process, and the benefits of registering with IFSCA. By establishing a well-regulated and globally connected financial ecosystem, IFSCA has the potential to significantly boost India’s financial standing and contribute to the growth of the global economy.
The government’s efforts to make the IFSC attractive, such as tax breaks and a streamlined approval process, are a good start. Additionally, there’s plenty of modern office space available, a reliable system for settling disputes and a single regulatory body (IFSCA) to keep things smooth. All these factors combined could transform the way financial services are conducted in India.
[1] International Financial Services Centres Authority (ifsca.gov.in)
[2] https://timesofindia.indiatimes.com/city/ahmedabad/gift-ifsc-funds-invest-2769m-in-india-ifsca/articleshow/107768291.cmsIFSC: GIFT IFSC Funds Invest $2,769m in India: IFSCA | Ahmedabad News – Times of India (indiatimes.com):
[3] International Financial Services Centres Authority (ifsca.gov.in): https://ifsca.gov.in/Pages/Contents/HowToApply
[4] IFSCA Allows SEBI-Registered Non-Bank Entities as FPIs to Issue Derivative Instruments in GIFT-IFSC (taxmann.com): https://www.taxmann.com/post/blog/ifsca-allows-sebi-registered-non-bank-entities-as-fpis-to-issue-derivative-instruments-in-gift-ifsc
[5] Chapter 8- IFSC_p.PDF (sebi.gov.in): https://www.sebi.gov.in/sebi_data/commondocs/oct-2019/Chapter%208-%20IFSC_p.PDF
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