International Financial Services Centres

Amendments to the International Financial Services Centre Authority (MII) Regulations, 2021

The International Financial Services Centre Authority ("IFSCA"), on October 29, 2024, has introduced the IFSCA (MII) (Amendment) Regulations, 2024, amending the IFSCA (MII) Regulations, 2021. These amendments came into force on November 1, 2024. Some of the key amendments include a redefined 'clearing corporation' to encompass entities involved in the settlement of securities and specified financial products, along with a broadened definition of 'key management personnel', individuals at various levels of responsibility, from managing directors and heads of core functions to key decision-makers, as outlined in the Companies Act, 2013. The other key amendments are as follows:

1. a new code of conduct is included for recognised MIIs with strict compliance oversight and the possibility of removal for misconduct;
2. a nomination and remuneration committee will oversee key managerial personnel compensation; and
3. a recognised clearing corporation will develop a framework for orderly winding down of its critical operations and services covering both voluntary and involuntary winding down.

Single window information technology system

Pursuant to the announcement of the 'Implementation of a single window IT-enabled system for application processing of entities desirous of setting up operations in GIFT International Finance Services Centre ("IFSC") to improve the Ease of Doing Business)', in the Union Budget for FY 2023-24, the IFSCA has developed a Single Window Information Technology System ("SWIT System"). The details of the SWIT System were announced vide circular dated September 30, 2024. The SWIT System inter alia contains a common application form, created by merging several existing forms including business-specific annexure forms. With the launch of SWIT System, applicants can now apply for license/registration from IFSCA, under the relevant IFSCA regulations and frameworks, through the SWIT System in addition to the Special Economic Zones ("SEZ") Act, 2005. Some of the other key features of the SWIT System are as under:

1. can be used for approvals from SEZ authorities and registration from goods and services tax network;
2. issuance of no objection certificate/requisite approval from appropriate regulators i.e. RBI, SEBI and Insurance Regulatory and Development Authority of India;
3. integrated payment gateway; and
4. integrated digital signature certificate module.

IFSCA has directed that from October 1, 2024, all the applicants, except the prescribed exceptions, must submit/file their applications exclusively through SWIT System.

Operations of foreign currency accounts of Indian resident individuals under the liberalised remittance scheme by IFSC Banking Units

IFSCA, vide circular dated October 10, 2024, has issued directions to IFSC Banking Units ("IBUs") for operations of Foreign Currency Accounts ("FCA") of Indian Resident Individuals ("RIs") opened under the Liberalised Remittance Scheme ("LRS"). IBUs must:

1. permit RIs to open FCA for receiving remittances: (a) under the LRS from onshore India; and (b) from locations other than onshore India;
2. ensure that all the remittances into the FCA from onshore India under the LRS are routed through an Authorised Person ("AP");
3. obtain a copy of the return submitted by RI to AP (as prescribed by RBI) before opening of the FCA and at the time of any inward remittance to the FCA from onshore India thereafter;
4. obtain a declaration from the RI that such remittance represents funds duly remitted earlier under the LRS or income earned on the investments made from funds duly remitted earlier under the LRS;
5. ensure that received/realised/unspent/unused foreign exchange from onshore India or from locations other than onshore India in FCA, unless reinvested within a period of 180 (one hundred and eighty) days from the date of such receipt/realisation/purchase/acquisition or date of return to India is repatriated through an AP to the account of the RI in designated AD Bank; and
6. permit remittance of funds received in FCA for undertaking all permitted current or capital account transactions, in any foreign jurisdiction (other than IFSCs).

IFSCA (Payment and Settlement Systems) Regulations, 2024

IFSCA, vide notification dated October 14, 2024, has issued the IFSCA (Payment and Settlement Systems) Regulations, 2024. These regulations lay down the process of authorisation and operations of payment systems in IFSCs. Some of the key provisions are as follows:

1. every system provider must comply with the Principles for Financial Market Infrastructure issued by the Committee on Payments and Market Infrastructures and International Organisation of Securities Commissions, and such other norms as may be specified by IFSCA;
2. every system provider must submit to IFSCA such returns, documents and other information in the specified form as may be required by IFSCA from time to time;
3. every system provider must furnish to IFSCA, within 3 (three) months from the date on which its annual accounts are closed, a copy of its audited balance sheet as on the last date of the relevant year along with a copy of the profit and loss account and also a copy of the auditor's report;
4. guidance on seeking exemptions from authorisations, relaxing enforcement, and handling procedural matters; and
5. upon commencement of the new regulations, the RBI Payment and Settlement Systems Regulations, 2008 will no longer apply in IFSCs, but any actions taken under the RBI regulations will remain valid.

Listing of commercial paper and certificates of deposit

IFSCA notified the IFSCA (Listing) Regulations, 2024 ("Listing Regulations") which came into force on August 29, 2024, providing the regulatory framework for listing of securities and other permitted financial products on the recognised stock exchanges in the IFSC. Subsequently, vide circular dated October 17, 2024, IFSCA has provided the regulatory requirements for facilitating issuers to list commercial paper and certificates of deposit in an efficient and transparent manner ensuring that adequate material information is made available to the investors for making informed decisions. The circular, inter alia, specifies the conditions for issuance of commercial paper and certificates of deposit, eligible issuers, eligible investors, listing process, disclosures in the offer document, investor protection measures and continuous disclosures.

Clarifications in relation to investment restrictions on retail schemes set up in IFSCs

IFSCA, vide circular dated October 29, 2024, has clarified that in case of investment by retail schemes in unlisted securities issued by an investment fund which is open-ended in nature, regulated by the concerned regulatory authority in its home jurisdiction and permitted for offering to retail investors in its home jurisdiction, the following ceilings/limits will not apply:

1. the ceiling of 15% investment of the total Asset Under Management ("AUM") of the scheme in unlisted securities in the case of an open-ended scheme;
2. the minimum investment amount of USD 10,000 (US Dollars ten thousand) for close-ended schemes investing more than 15% of AUM in unlisted securities;
3. the ceiling of 50% investment of AUM in unlisted securities in case of a close-ended scheme; and
4. the ceiling of 25% investments of AUM in the associates.

Further, in case of a retail scheme which is in the nature of a fund-of-funds scheme, the Fund Management Entity ("FME") must disclose in the offer document the details of the underlying scheme(s) wherein the investments are intended to be made and the nature of association, if any, that the FME has with the manager of the underlying scheme(s).

Framework for environmental, social and governance ratings and data products providers in the IFSC

IFSCA issued a circular dated October 30, 2024, outlining the framework for entities wishing to operate as Environmental, Social and Governance ("ESG") Ratings and Data Products Providers ("ERDPP") within the IFSC. Under the new framework, such entities must obtain registration with IFSCA. Such entities must be present in the IFSC by establishing a branch or forming a company or limited liability partnership or body corporate or any other form as permitted by IFSCA. Existing credit rating agencies already registered with IFSCA are permitted to offer ESG ratings without undergoing a separate registration process. Entities must maintain a minimum net worth of at least USD 25,000 (US Dollars twenty-five thousand), appoint a principal officer and compliance and adhere to a code of conduct focusing on governance, transparency and conflict management. Additionally, ERDPPs are mandated to publish their rating methodologies and undertake an annual audit to uphold service quality and credibility.

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