February 13, 2019:

Currently, banking, capital markets and insurance sectors in IFSCs are regulated by multiple regulators — the RBI, Sebi and Irdai — and this would provide inter-regulatory coordination.

The government Tuesday introduced a Bill to set up a unified authority for regulating all financial services in international financial services centres (IFSCs) in the country.

The International Financial Services Center Authority Bill, 2019 mandates transaction of financial services in the IFCS shall be governed by an Authority headed by a Chairman.

Currently, banking, capital markets and insurance sectors in IFSCs are regulated by multiple regulators — the RBI, Sebi and Irdai — and this would provide inter-regulatory coordination.

The bill has a provision for establishment and incorporation of the Authority. Regulatory bodies including RBI, SEBI, IRDA, PFRDI would have one nominee as its member, while the Finance Ministry will have rights to nominate two officials in the Authority.

It will be “regulating the financial products, financial services and financial institutions in an IFSC,” the bill said.

Two members could also be appointed by the central government on the recommendation of the selection committee.

“The Chairperson and a member shall hold offices for a term of three year from the date on which he enters upon his office and shall be eligible for reappointment,” the bill said.

An IFSC enables to bring back to India the financial services and transactions that are currently carried out in offshore financial centers by Indian corporate entities and overseas branches or subsidiaries of financial institutions (FIs).

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It provides business and regulatory environment that is comparable to other leading international financial centres in the world like London and Singapore.

Why regulate IFSCs?

  1. Currently, the banking, capital markets and insurance sectors in IFSC are regulated by multiple regulators, i.e. RBI, SEBI and IRDAI.
  2. The dynamic nature of business in the IFSCs necessitates a high degree of inter-regulatory coordination.
  3. It requires regular clarifications and frequent amendments in the existing regulations governing financial activities in IFSCs.
  4. The development of financial services and products in IFSCs would require focussed and dedicated regulatory interventions.
  5. It provides world class regulatory environment to financial market participants.
  6. Further, this would also be essential from an ease of doing business perspective.

The main features of the Bill are summarised below.

Currently, the banking, capital markets and insurance sectors in the IFSC are regulated by multiple regulators, i.e., the Reserve Bank of India (RBI), the Securities and Exchange Board of India (SEBI) and the Insurance Regulatory and Development Authority of India (IRDAI). During the Union Budget 2018, the Finance Minister had announced that the Government.

1. Management of the Authority The authority will consist of the following –  A chairperson;  one member from RBI;  one member from SEBI;  one member from IRDAI;  one member from the Pension Fund Regulatory and Development Authority;  two members to be nominated by the Central Government; and  two other whole-time or full-time or part-time members as decided by the Central Government.

2. Functions of the Authority The Authority will regulate the following –  All financial services, financial products and financial institutions (FIs) in an IFSC that have already been permitted by the financial sector regulators for IFSCs.  Such other financial products, financial services or FIs as may be notified by the Central Government from time to time. The Authority may also recommend to the Central Government such other financial products, financial services and FIs that may be permitted in IFSCs.

3. Powers of the Authority The Authority in IFSC will solely exercise all the powers exercisable by the respective financial sector regulators under the respective Acts for the regulation of financial products, financial services and FIs that are permitted in IFSC.

4. Processes and procedures of the Authority The processes and procedures to be followed by the Authority in IFSCs will be governed in accordance with the provisions of the respective Acts of the Parliament of India applicable to such financial products, financial services or FIs.

5. Transactions in foreign currency The transactions of financial services in IFSCs shall be made in foreign currency as specified by the Authority in consultation with the Central Government. This is in line with the existing regulations prescribed by the RBI under the Foreign Exchange Management (IFSC) Guidelines, 2015. Key takeaways: This draft Bill is a culmination of the efforts of the Department of Economic Affairs and Ministry of Finance. The draft Bill has taken into account the regulatory requirements of the IFSC and the provisions of the existing laws of the financial sector.

The Union Cabinet’s approval comes at an opportune moment with the regulators easing up/ clarifying operational norms for establishing new businesses. The establishment of a unified financial regulator for IFSCs will go a long way in providing world-class regulatory environment to market participants from the perspective of ease of doing business.

This will help address the diverse issues/ need for clarifications that could arise on account of the dynamic and unique nature of the business activities proposed in the IFSCs.

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