The International Financial Services Centres Authority Bill, 2019
On 12 February 2019, the International Financial Services Centres Authority Bill, 2019 was proposed in the Upper House of the parliament. It provides for the establishment of an authority to regulate and develop the financial services market in the International Financial Services Centres set up in Special Economic Zones in India.
Salient features of the Bill include:
The Bill will apply to all International Financial Services Centres (IFSC) comes under the Special Economic Zones Act, 2005.
Constitution of the International Financial Services Centres Authority:
The Bill provides for the set up of the International Financial Services Centres Authority. The Authority will encompass nine members, appointed by the central government. These posts will have a tenure of three years, subject to reappointment.
Members of the Authority will cover in:
four members to be elected from the Reserve Bank of India, the Pension Fund Regulatory & Development Authority, the Securities Exchange Board of India, the Insurance Regulatory and Development Authority of India
two members from among officials of the Ministry of Finance,
two members to be appointed on the suggestion of a Selection Committee.
Functions of the Authority
Functions of the Authority include:
regulating financial services, financial products, and financial institutions in an IFSC which have been approved by any regulator like the RBI or SEBI, before the enactment of the Bill,
regulating any other services, financial products, or institutions in an IFSC, which may be informed by the central government,
recommending to the central government, any other financial services, products, or institutions which may be permitted in an IFSC.
Performance Review Committee
The Authority will constitute a Performance Review Committee to review the functioning of the Authority. The Committee will cover in at least two members of the Authority.
The Committee will review whether:
the Authority has complied with the provisions of the applicable laws while performing functions, or exercising powers
the regulations made by the Authority to promote lucidity and best practices of governance,
the Authority is managing risks to its functioning in a reasonable manner.
Transaction in foreign currency
Under the Bill, all transactions of financial services in IFSCs will be in such foreign currency as specified by the Authority, in consultation with the central government.
International Financial Services Centres Authority Fund
The Bill institutes the International Financial Services Centres Authority Fund. The following amounts will be credited to the Fund:
all charges, fees and grants received by the Authority,
all sums received by the Authority from various sources, as decided by the central government.
Further, all powers relating to the regulation of financial products, services, and institutions in IFSCs, which were previously exercised by the respective regulators will be exercised by the Authority. All processes to be followed by the Authority in respect of such regulation (such as procedures for the investigation of offences) will be identical to the provisions for these processes under the respective laws of the regulators.
Need for the introduction of this bill
Currently, the capital markets, insurance sectors, and banking in IFSC are regulated by various regulators like IRDAI, RBI, and SEBI.
The dynamic nature of business in the IFSCs necessitates a high degree of inter-regulatory coordination. It also needs regular clarifications and frequent amendments in the existing regulations governing financial activities in IFSCs
The development of financial products and services in IFSCs would need focused and dedicated regulatory interventions. Hence, a need for a unified financial regulator for IFSCs in India to provide a world-class regulatory environment to financial market participants.
Further, this would also be indispensable 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.
The establishment of a unified financial regulator for IFSCs will result in providing a world-class regulatory environment to market participants from an ease of doing business perspective. This will provide a stimulus for further development of IFSCs in India and enable bringing back of financial services and transactions that are presently carried out in offshore financial centres to India. This would also generate employment in the IFSCs in particular as well as the financial sector in India as a whole.