The Indian cabinet has approved the establishment of a unified authority to regulate all financial services in International Financial Services Centres (IFSCs) in India. This would be effected by enacting a new law through the International Financial Services Centres Authority Bill, 2019.
The first IFSC in India to be set up is the Gujarat International Finance-Tec City (GIFT City). It is currently the only IFSC in the country. At present, the banking, capital market and insurance sectors in the IFSC are regulated by their respective sectoral regulators, that is, the Reserve Bank of India (RBI), Securities & Exchange Board of India (SEBI) and Insurance Regulatory and Development Authority of India (IRDAI), respectively.
IFSCs require focussed and dedicated regulatory environment
The development of financial services and products in IFSCs would require focussed and dedicated regulatory interventions. Hence, a need was felt for a unified financial regulator for IFSCs in India to provide a world class regulatory environment for financial market participants.
In view of the regulatory requirements of IFSCs and the provisions of existing laws of the financial sector, the Ministry of Finance has piloted the draft Bill to set up a separate unified regulator for IFSCs.
Main features of the Bill
Management of the IFSC Authority:
The Authority shall consist of a chairperson. One member each will be nominated by the RBI, SEBI and IRDAI and the Pension Fund Regulatory and Development Authority (PFRDA). In addition, two members will be nominated by the central government. Two other whole-time or part-time members will also be appointed.
Functions of the Authority:
The Authority shall regulate all such financial services, financial products and financial institutions (FIs) in an IFSC which have already been permitted by the financial sector regulators for IFSCs. The Authority shall also regulate such other financial products, financial services or FIs as may be notified by the central government from time to time. It may also 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 regulators (RBI, SEBI, IRDAI, and PFRDA) 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.
Processes and procedures of the Authority:
The processes and procedures to be followed by the Authority shall be governed in accordance with the provisions of the respective Acts of Parliament of India applicable to such financial products, services or institutions, as the case may be.
Grants by the central government:
The central government may, after due appropriation made by parliament by law in this behalf, make to the Authority grants of such sums of money as the central government may think fit for being utilised for the purposes of the Authority.
Transactions in foreign currency:
The transactions of financial services in the IFSCs shall be done in the foreign currency as specified by the Authority in consultation with the central government.
GIFT City has been ranked as third most promising financial services centre globally, in a half-yearly report in 2018 by The China Development Institute (CDI) in Shenzhen and Z/Yen Partners in London.
The ranking takes into consideration five major factors namely business environment, human capital, reputation, infrastructure and financial sector development. This ranking should build further confidence in investors to set up operations in GIFT IFSC.