International Financial Services Centres Authority (IFSCA)
Introduction:
The International Financial Services Centres Authority (IFSCA) is a statutory authority established by the Indian Government to develop and regulate financial services, financial products, and financial institutions in the International Financial Services Centre (IFSC) in India.
IFSCA’s Mandate:
The main goal of the IFSCA is to promote ease of doing business in IFSC and provide a world-class regulatory environment. It regulates the nature of business transacted in IFSC and also the functioning of entities involved in transacting business in IFSC.
IFSCA’s Responsibilities:
Before the establishment of IFSCA, the financial services and institutions were regulated by domestic financial regulators such as SEBI, RBI, IRDAI, PFRDA, etc. However, the IFSCA is solely responsible for regulating the financial services, products, and institutions in the IFSC.
IFSCA’s Functions:
Currently, only one IFSC, Gift City, in Gandhinagar, Gujarat, is being developed in India. The IFSCA will regulate the nature of business transacted in IFSC and will ensure a world-class regulatory environment to attract global investors. It also participates in international conferences and seminars to promote India as a destination for international financial services.
IFSCA Members:
The IFSCA consists of nine members appointed by the Government of India. The members include the chairperson, one member each from RBI, SEBI, PFRDA, and IRDAI, two members from the Finance Ministry, and two members appointed on the recommendation of a Selection Committee. Each member’s term is three years, subject to reappointment.
The IFSCA is responsible for developing and regulating the financial services, products, and institutions in the IFSC in India. It plays a significant role in promoting ease of doing business and providing a world-class regulatory environment. By developing the IFSC, the IFSCA aims to attract global investors and contribute to the growth of the Indian economy.
International Financial Services Centre (IFSC): Definition and Advantages
Introduction:
The article discusses the concept of an International Financial Services Centre (IFSC), which is a financial centre catering to customers outside the jurisdiction of the domestic economy.
Definition of IFSC:
An IFSC is a jurisdiction that provides world-class financial services to non-residents and residents, in a currency other than the domestic currency of the location where the IFSC is located. Examples of existing IFSCs include London, Singapore and New York, while Shanghai and Dubai are emerging IFSCs.
Advantages of IFSCs:
IFSCs seek to attract overseas investors by bringing financial services that are currently being carried outside India by overseas financial institutions. They serve multiple purposes such as fundraising, global tax management and corporate treasury management, among others. An IFSC can also facilitate the rerouting of financial services and transactions that are currently carried out in offshore financial centres by Indian corporate entities and overseas branches/subsidiaries of financial institutions. The regulatory environment offered by an IFSC in India is comparable to that of London, New York, etc., making it an attractive investment destination. Additionally, it can provide enhanced access to global financial markets for Indian corporates and offers tax benefits to entities set up in the IFSC.
Services offered by an IFSC:
An IFSC can provide services such as fundraising, wealth management, asset management, global tax management, risk management operations, and regional corporate treasury management operations, among others.
Requirements and Legal Provision for IFSCs
Major Building Blocks of IFSCs
IFSCs require six major building blocks, which have been observed in IFSCs in Shanghai and Dubai. These include a rational legal regulatory framework, a sustainable local economy, a stable political environment, developed infrastructure, strategic location, and good quality of life.
Legal Provision for IFSCs in India
The Special Economic Zone Act, 2005 provides for the establishment of an IFSC in India. Since there are restrictions on the financial sector in India, it is advisable to set up an IFSC within a Special Economic Zone. This would allow for financial sector reforms to be tested before being implemented nationwide. The government approved GIFT City in Gandhinagar as a Multi Services Special Economic Zone for this purpose.
Models of IFSCs
Full-Service Finance Centres
Model 1 of IFSCs, exemplified by Tokyo and New York, have their own large domestic economies and robust regulatory and legal frameworks.
Offshore Financial Centres
Model 2 of IFSCs, such as Mauritius, lack a strong domestic economy but have international access and acceptance.
Hybrid Model
Singapore is an example of Model 3, a hybrid IFSC model that combines both domestic and international business.
India’s IFSC Model
India has opted for the hybrid model of IFSCs, similar to Singapore, with the establishment of GIFT City as a Multi Services Special Economic Zone.