A unified authority for regulating all financial services in IFSCs

Context: The Union Cabinet has approved establishment of a unified authority for regulating all financial services in International Financial Services Centres (IFSCs) in India through International Financial Services Centres Authority Bill, 2019.

Facts: The first IFSC in India has been set up at GIFT City, Gandhinagar, Gujarat.

Need for and the benefits of a unified authority:

• Currently, the banking, capital markets and insurance sectors in IFSC are regulated by multiple regulators, i.e. 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 focussed and dedicated regulatory interventions.
• Therefore, a unified financial regulator for IFSCs in India would provide world class regulatory environment to financial market participants. This also be essential from an ease of doing business perspective.
• The unified authority would also provide the much needed impetus to further development of IFSC in India in-sync with the global best practices.

A draft Bill has been prepared to set up a separate unified regulator for IFSCs. Following are the main features of the Bill:

Management of the Authority:  The Authority shall consist of a Chairperson, one Member each to be nominated by the Reserve Bank of India (RBI), the Securities Exchange Board of India (SEBI), the Insurance Regulatory and Development Authority of India (IRDAI) and the Pension Fund Regulatory and Development Authority(PFRDA), two members to be dominated by the Central Government and two other whole-time or full-time or part-time members.

Functions of the Authority:

1. regulate all such financial services, financial products and FIs in an IFSC which has already been permitted by the Financial Sector Regulators for IFSCs.
2. regulate such other financial products, financial services or FIs as may be notified by the Central Government from time to time.
3. recommend to the Central Government such other financial products, financial services and financial institutions which may be permitted in the IFSCs.

Powers of the Authority: All powers exercisable by the respective financial sector regulatory (viz. RBI, SEBI, IRDAI, and PFRDA etc.) under the respective Acts shall be solely exercised by the Authority in the IFSCs in so far as the regulation of financial products, financial services and FIs that are permitted in the IFSC are concerned.

What is an IFSC?

An IFSC enables bringing back the financial services and transactions that are currently carried out in offshore financial centers by Indian corporate entities and overseas branches / subsidiaries of financial institutions (FIs)to India by offering business and regulatory environment that is comparable to other leading international financial centers in the world like London and Singapore.

It would provide Indian corporates easier access to global financial markets. IFSC would also compliment and promote further development of financial markets in India.

What are the services an IFSC can provide?

1. Fund-raising services for individuals, corporations and governments.
2. Asset management and global portfolio diversification undertaken by pension funds, insurance companies and mutual funds.
3. Wealth management.
4. Global tax management and cross-border tax liability optimization, which provides a business opportunity for financial intermediaries, accountants and law firms.
5. Global and regional corporate treasury management operations that involve fund-raising, liquidity investment and management and asset-liability matching.
6. Risk management operations such as insurance and reinsurance.
7. Merger and acquisition activities among trans-national corporations.