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The International Financial Services Centres Authority Bill

Context:

The International Financial Services Centres Authority Bill, 2019 is likely to be taken up by Parliament for discussion.

Finance Minister Nirmala Sitharaman introduced the Bill in LokSabha recently.

The Bill provides for the establishment of an Authority to develop and regulate the financial services market in the International Financial Services Centres in India.

Who is covered?

The Bill will be applicable to all International Financial Services Centres (IFSCs) set up under the Special Economic Zones Act, 2005.

The first IFSC in India has been set up at the Gujarat International Finance Tec-City (GIFT City) in Gandhinagar.

According to a release issued by the government when the Bill was first cleared by the Union Cabinet, “An IFSC enables bringing back the financial services and transactions that are currently carried out in offshore financial centres by Indian corporate entities and overseas branches/subsidiaries of financial institutions (FIs) to India by offering business and regulatory environment that is comparable to other leading international financial centres in the world like London and Singapore”.

IFSCs are intended to provide Indian corporates with easier access to global financial markets, and to complement and promote further development of financial markets in India, the release said.

Authority to be set up:

The International Financial Services Centres Authority will consist of nine members, appointed by the central government.

They will include the chairperson of the authority, a member each from the Reserve Bank of India (RBI), the Securities and Exchange Board of India (SEBI), the Insurance Regulatory and Development Authority of India (IRDAI), and the Pension Fund Regulatory and Development Authority (PFRDA); and two members from the Ministry of Finance. In addition, two other members will be appointed on the recommendation of a Search Committee.

All members of the IFSC Authority will have a term of three years, subject to reappointment.

Functions of Authority:

The Authority will regulate financial products such as securities, deposits or contracts of insurance, financial services, and financial institutions which have been previously approved by any appropriate regulator such as RBI or SEBI, in an IFSC.

It will follow all processes which are applicable to such financial products, financial services, and financial institutions under their respective laws.

The appropriate regulators have been listed in a Schedule to the Bill, and includes the RBI, SEBI, IRDAI, and PFRDA.

The central government may amend this schedule through a notification.

Among the other functions of the Authorityare the regulation of any other financial products, financial services, or financial institutions in an IFSC, which may be notified by the central government.

Another function is to recommend to the central government any other financial products, financial services, or financial institutions, which may be permitted in an IFSC.

Need for such an Authority:

The release issued by the government explained that currently, the banking, capital markets and insurance sectors in IFSC are regulated by multiple regulators, i.e. RBI, SEBI and IRDAI.

It requires regular clarifications and frequent amendments in the existing regulations governing financial activities in IFSCs.

The development of financial services and products in IFSCs would require focussed and dedicated regulatory interventions.

Hence, a need is felt for having a unified financial regulator for IFSCs in India to provide world class regulatory environment to financial market participants.

This would also be essential from an ease of doing business perspective.

The unified authority would also provide the much needed impetus to further development of IFSC in India in sync with the global best practices.

Connecting the dots:

The dynamic nature of business in the IFSCs necessitates a high degree of inter-regulatory coordination. Comment.