International Financial Services Centre: Cabinet approves setting up of unified authority for regulating IFSCs in India
The Union Cabinet on February 6, 2019 approved establishment of a unified authority for regulating all financial services in International Financial Services Centres (IFSCs) in India through the International Financial Services Centres Authority Bill, 2019.
The International Financial Services Centre is the institution that caters to customers outside the jurisdiction of the domestic economy. These centres deal with flows of finance, financial products and services across borders.
India’s first International Financial Services Centre (IFSC) became operational on April 11, 2015 at GIFT City in Gandhinagar, Gujarat.
For setting up a separate unified regulator for IFSCs, the Department of Economic Affairs, Union Ministry of Finance prepared a draft Bill. Here are the provisions of the Bill:
Management of the Authority
The Authority will 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 will be dominated by the Central Government and two other whole-time or full-time or part-time members will also be there.
Functions of the Authority
Powers of the Authority
All the powers enjoyed by the respective financial sector regulatory such as RBI, SEBI, IRDAI, under the respective Acts will be exercised by the Authority in the IFSCs.
Processes and procedures of the Authority
The Authority will follow such processes and procedures which are governed in accordance with the provisions of the respective Acts of Parliament applicable to financial products, services or institutions.
Grants by the Central Government
The Central Government, after due appropriation made by Parliament by law, may grant few funds to the authority for its purposes.
Transactions in foreign currency
The transactions of financial services in the IFSCs will be done in the foreign currency as specified by the Authority in consultation with the Central Government.
Why Government felt a need for having a unified financial regulator for IFSCs?
At present, the banking, capital markets and insurance sectors in IFSC are regulated by multiple regulators such as the Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI) and Insurance Regulatory and Development Authority of India (IRDAI).
The nature of business in the IFSCs requires a high degree of inter-regulatory coordination and regular clarifications in the existing regulations governing financial activities in IFSCs.
Hence, a need was felt for having a unified financial regulator for IFSCs in India to provide world class regulatory environment to financial market participants. The unified authority would provide the much needed thrust for further development of IFSC in India.
Functions of International Financial Services Centre (IFSC)
• An IFSC helps bring back the financial services and transactions that are currently carried out in offshore financial centers by Indian corporate entities and overseas branches of financial institutions to India by offering business and regulatory environment.
• The centre works on the similar lines as that of other leading international financial centers in the world like London and Singapore.
• It provides Indian corporates easier access to global financial markets.
• IFSC also compliments and promotes further development of financial markets in India.