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India now has “International Financial Services Centres Authority"

In a path breaking reform, both houses of parliament have passed the International Financial Services Centres Authority Bill, 2019. The Bill provides to set up world class unified regulator for international financial services combining powers and functions of RBI, SEBI, IRDAI and PFRDA. 

Currently, the banking, capital markets and insurance sectors in IFSC are regulated by multiple regulators such as RBI, SEBI and IRDAI. The dynamic nature of business in the IFSCs necessitates a high degree of inter-regulatory coordination. It also requires regular clarifications and frequent amendments in the existing regulations governing financial activities in IFSCs. The development of financial services and products in IFSCs would require focused and dedicated regulatory interventions. Hence, a need was felt for having a unified financial regulator for IFSCs in India to provide world class regulatory environment to financial market participants.

The establishment of a unified financial regulator for IFSCs will result in providing world-class regulatory environment to market participants from an ease of doing business perspective. This will provide a stimulus for further development of IFSCs in India and enable bringing back of financial services and transactions that are currently carried out in offshore financial centres to India. This would also generate significant employment in the IFSCs in particular as well as financial sector in India as a whole.     

What is IFSC?
An IFSC caters to customers outside the jurisdiction of the domestic economy. Such centres deal with flows of finance, financial products and services across borders. London, New York and Singapore can be counted as global financial centres. The first IFSC in India has been set up at GIFT City in Gandhinagar, Gujrat. IFSCs can be set up in an SEZ or as an SEZ after approval from the Centre. IFSCs would also provide Indian companies easier access to global financial markets and also enable the development of financial markets in India.

The key features of the Bill - 
Coverage: The Bill will apply to all International Financial Services Centres (IFSCs) set up under the Special Economic Zones Act, 2005.

International Financial Services Centres Authority: The Bill sets up the International Financial Services Centres Authority which will consist of nine members, appointed by the central Government.  Members of the Authority will include: (i) the Chairperson, (ii) one member each to be nominated from the Reserve Bank of India (RBI), the Securities and Exchange Board of India (SEBI), the Insurance Regulatory and Development Authority of India (IRDAI), and the Pension Fund Regulatory and Development Authority (PFRDA), (iii) two members from among officials of the Ministry of Finance, and (iv) two members to be appointed on the recommendation of a Search Committee.  Members will have a term of three years, subject to reappointment. 

Functions of the Authority: The Authority will regulate financial products (such as securities, deposits or contracts of insurance), financial services, and financial institutions which have been previously approved by any appropriate regulator (such as RBI or SEBI), in an IFSC.  It will follow all processes which are applicable to such financial products, financial services, and financial institutions under their respective laws.  

Other functions of the Authority : 
• Regulating any other financial products, financial services, or financial institutions in an IFSC, which may be notified by the central government, and
• Recommending any other financial products, financial services, or financial institutions to the central government, which may be permitted in an IFSC. 

International Financial Services Centres Authority Fund: The Bill sets up the International Financial Services Centres Authority Fund. 
The following items will be credited to the Fund: 
(i) All grants, fees and charges received by the Authority, and 
(ii) All sums received by the Authority from various sources, as decided by the central government. 
The Fund will be used for: (i) salaries, allowances and other remuneration of members and employees of the Authority, and (ii) expenses incurred by the Authority.  Further, the central government may provide grants to the Authority for the regulation of IFSCs.

Performance Review Committee: The Authority will constitute a Performance Review Committee to review its functioning.  The Review Committee will consist of at least two members of the Authority.  It will review whether: (i) the Authority has adhered to the provisions of the applicable laws while exercising powers or performing functions, (ii) the regulations made by the Authority promote transparency and best practices of governance, and (iii) the Authority is managing risks to its functioning in a reasonable manner. The Committee must submit a report of its findings to the Authority at least once every year. 

Transaction in foreign currency: As per the Bill, all transactions of financial services in IFSCs will be in such foreign currency as specified by the Authority, in consultation with the central Government. 

                                                      ~~~~~~~~~~~~~~~~~
                                                      -  Shive Mishra 
                                                     ~~~~~~~~~~~~~~~~~

                                                     

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