The Gujarat International Finance Tec-City (“GIFT City”) is being developed as a global financial and IT Services hub, a first of its kind in India.  GIFT City is home to the GIFT International Financial Services Centre (“GIFT IFSC”), which serves as both a financial centre and a special economic zone to provide a high level of infrastructure and services for financial institutions and companies operating in banking, insurance, capital markets and asset management.  

Further, the International Financial Services Centres Authority (“IFSCA”) was established on April 27, 2020 under the International Financial Services Centres Authority Act, 2019. It is headquartered at GIFT City, Gandhinagar in Gujarat. It acts as the single regulatory body for financial institutions, services, and products within the International Financial Service Centres (IFSCs) in India. This consolidates the powers previously held by four separate regulators: Reserve Bank of India (“RBI”), Securities and Exchange Board of India (“SEBI”), Insurance Regulatory and Development Authority of India (“IRDAI”), and Pension Fund Regulatory and Development Authority of India (“PFRDAI”). It has been established as a unified regulator to promote ease of doing business in IFSCs and provide a world-class regulatory environment.

This July newsletter covers legal, regulatory, and transactional updates and developments related to the GIFT IFSC.

SEBI enables Credit Rating Agencies (“CRAs”) and ESG Rating Providers (“ERPs”) to operate under IFSCA in GIFT IFSC.

July 25, 2024 – SEBI vide circular dated July 19, 2024, has enabled CRAs and ERPs to undertake rating activities under the IFSCA in the GIFT IFSC. To enable this, SEBI has added IFSCA to the list of financial sector regulators. The ESG and CRAs ratings conducted by ERPs and CRAs respectively, under the guidelines of IFSCA will fall under the jurisdiction of IFSCA. 

Consequently, IFSCA clarified that a CRA registered with SEBI and desirous of providing rating services in the GIFT IFSC shall apply for registration with IFSCA in accordance with the requirements of IFSCA (Capital Market Intermediaries) Regulations, 2021, as amended from time to time. Further, a CRA that has obtained a certificate of registration from the IFSCA is also entitled to undertake the valuation of assets of the scheme under IFSCA (Fund Management) Regulations, 2022.

Source IFSCA website, Circular dated July 25th, 2024

Union Budget, 2024 (“The Budget”) proposed tax exemptions) in GIFT IFSC.

July 23, 2024 – In the Budget, it is proposed that retail schemes and Exchange Traded Funds (“ETFs”) in the GIFT IFSC will receive tax exemptions similar to those available to specified funds. Additionally, no surcharge will apply to income payable from securities of GIFT IFSC-based specified funds. Furthermore, a Venture Capital Fund (“VCF”) in GIFT IFSC extending a loan or other amount to an assessee will not be required to explain the source of funds.

As per Section 94B of the Income Tax Act, 1961 (“IT Act”), interest or similar nature payable to non-resident associated enterprise (AE) is not deductible while computing income chargeable under the head “profits and gains of business or profession”, if such interest is arising from excess interest. It is proposed to exempt certain finance companies in GIFT IFSC from the applicability of Section 94B of the IT Act. 

Source: Union Budget, 2024- 2025

IFSCA requests for feedback / comment / suggestion on IFSCA (Global In-House Centres) Regulations, 2020.

July 18, 2024 – IFSCA is seeking feedback, comments, and suggestions for reviewing the IFSCA (Global In-House Centres) Regulations, 2020, under Regulation 7 of the International Financial Services Centres Authority (Procedure for making Regulations) Regulations, 2021. This review aims to incorporate the experiences and outcomes of market participants and stakeholders.

Source: Gift IFSCA website

IFSCA invites suggestions for review of IFSCA (Capital Market Intermediaries) Regulations, 2021.

July 18, 2024 - IFSCA, invites suggestions to carry out a comprehensive review of existing regulations i.e. IFSCA (Capital Market Intermediaries) Regulations, 2021 from public and regulated entities.

The regulator expects this move to be considered for the purpose of evolving various needs, including ease and reduce the cost of compliance by various stakeholders.

Source: Gift IFSCA website, Press release dated July 18th, 2024

Report submitted on Drafting Institutional Arbitral Rules for the proposed International Arbitration Centre at GIFT IFSC.

July 16, 2024 - The committee of experts (the “Committee”) led by Dr. M. S. Sahoo, submitted its report on July 16, 2024, regarding the institutional arbitral rules and procedures along with the regulatory design, legal framework for the proposed International Arbitration Centre at GIFT IFSC (“Report”) to IFSCA. IFSCA formed the Committee to set up an effective and competitive Alternative Dispute Resolution Centre (“ADRC”) at GIFT City ensuing the Hon’ble Finance Minister’s announcement in the Union Budget for FY 2022-23: “An International Arbitration Centre will be set up in GIFT City for timely settlement of disputes under international jurisprudence”.

The Committee examined globally well-established regulatory and institutional frameworks for ADRC, such as Singapore, Hong Kong and Dubai etc. which would be based on international jurisprudence focusing on dispute redressal in a speedy and cost-effective manner. The key recommendations of the Committee include adopting international best practices, technology usage, third-party funding, and representation by foreign lawyers. The Committee also suggested provisions for governing law selection and a dedicated bench for arbitration appeals. Additionally, a legal and administrative framework for an autonomous ADRC and a judicial framework, including an IFSC International Court with High Court-like powers for alternate dispute resolution, are proposed in the Report.

Source: Gift IFSCA website

IFSCA’s press release on the Financial Action Task Force (“FATF”) public statement on High-Risk Jurisdictions.

July 16, 2024 - IFSCA noted that the FATF has identified certain jurisdictions as having strategic deficiencies and has developed an action plan with the FATF to deal with them. The "Jurisdictions under Increased Monitoring" are Bulgaria, Burkina Faso, Cameroon, Croatia, Democratic Republic of the Congo, Haiti, Kenya, Mali, Monaco, Mozambique, Namibia, Nigeria, Philippines, Senegal, South Africa, South Sudan, Syria, Tanzania, Venezuela, Vietnam, and Yemen.  Turkiye and Jamaica have been removed from the list of Jurisdictions under Increased Monitoring. Further, IFSCA noted that the regulated entities are still permitted to engage in legitimate trade and business transactions with the aforementioned countries and jurisdictions.

Source: Gift IFSCA website, Press release dated July 16th, 2024 

IFSCA notified the International Financial Services Centres Authority (Board for Regulation and Supervision of Payment and Settlement Systems) Regulation, 2024.

July 12, 2024- IFSCA has introduced new regulations which establish a board to oversee payment systems within IFSCA. The board, composed of IFSCA members, will set policies, standards, and authorize payment systems. It will determine membership criteria, ensure compliance, recommend administrative structures, and protect consumer interests while maintaining system safety. These regulations aim to effectively regulate and supervise payment systems within IFSCA, ensuring transparency and financial stability.

Source: Gift IFSCA website, Regulation dated July 12th, 2024

IFSCA permits banking units to participate in synthetic securitisation program of the parent bank.

July 11, 2024 - IFSCA has allowed International Financial Services Centre Banking Units (IBUs) to participate in their parent banks' synthetic securitisation programs. Synthetic securitisation involves transferring the credit risk of a portfolio using credit derivatives or guarantees while keeping the exposure on the lender's balance sheet. These conditions include the requirement that: (i) adoption of Basel III framework and such IBU have not prohibited within its jurisdiction from engaging in such transactions; (ii) IBUs are mandated to notify IFSCA before their exposures are integrated into their parent bank's synthetic securitisation program; (iii) IBUs must comply with the Prudential Directions and the IFSCA Banking Handbook; and (iv) IFSCA may request copies of relevant reports submitted to the home regulator. 

Source: Gift IFSCA website, Circular dated July 11th, 2024 

RBI eases the Liberalised Remittance Scheme (“LRS”) norms for investments via GIFT IFSC.

July 10, 2024 - The RBI has eased the scope of LRS as applicable to the GIFT IFSC. Previously, remittances under LRS to GIFT IFSC could be made for making investments in GIFT IFSC in securities (except those issued by entities outside GIFT IFSC) and payment of fees for education to foreign universities or foreign institutions in IFSCs for pursuing certain courses. Resident individuals were permitted to open Foreign Currency Accounts (“FCAs”) in IFSCs for these purposes. However, the RBI has now allowed authorized persons to facilitate LRS remittances to GIFT IFSC for availing financial services or financial products within GIFT IFSC, as well as for all current or capital account transactions in any other foreign jurisdiction (outside GIFT IFSC) through an FCA held in GIFT IFSC. The resident individuals can open FCAs in GIFT IFSC for these permissible purposes.

Source: Gift IFSCA website, Circular dated July 10th, 2024

IFSCA invites comments on consultation paper on the proposed amendments to the IFSCA (Registration of Insurance Business) Regulations, 2021.

July 10, 2024 - IFSCA has issued a public consultation paper on the draft of IFSCA (Registration of Insurance Business) (Amendment) Regulations, 2024 and the general public is requested to provide their suggestions/comments latest by July 30, 2024. Through the said draft, IFSCA seeks to align the IFSCA (Registration of Insurance Business) Regulations, 2021 with the amendments made by the IRDAI in the IRDAI (Re-insurance) Regulations, 2018. These amendments to the IRDAI (Re-insurance) Regulations, 2018 define International Financial Services Centre Insurance Offices (“IIOs”) and establish categories of preference for Indian cedants to place re-insurance business, placing IIOs in Category 2 and 3 of the preference order. According to the proposed amendment to the IFSCA (Registration of Insurance Business) Regulations, 2021, an applicant intending to establish an IIO must choose and declare the category at the time of seeking registration. Depending on the chosen category, the IIO will be eligible to seek re-insurance business placement from Indian cedants, subject to the conditions assigned to that category.

Further, as per the proposed amendment, the IFSCA being a unified regulator will soon introduce the Single Window IT System (“SWITS”). SWITS will have a common application form (CAF) for all entities seeking International Financial Services Centre registration, including IIOs, and will issue system-generated Certificates of Registration (CoR). To simplify processes, existing templates for application forms and CoR formats will be removed from the regulations once SWITS is operational.

Source: Gift IFSCA website

IFSCA extends the applicability of guidelines and provisions for Direct Market Access (“DMA”) facility and Sponsored Access (“SA”) facilities to bullion exchange participants.

July 08, 2024 - The IFSCA, vide circular dated June 21, 2023, has issued guidelines for DMA and SA facilities offered by broker-dealers for trading on stock exchanges in the GIFT IFSC. In continuation of the same, IFSCA extended the applicability of these guidelines and provisions for the DMA facility and SA facility to bullion exchanges, bullion trading members, and bullion clearing members.  Further, the bullion exchange is advised to amend its bye-laws, rules, and regulations to implement these guidelines. Additionally, the bullion exchange shall inform bullion trading and clearing members and publish the provisions of this circular on its website.

Source: Gift IFSCA website, Circular dated July 08th, 2024 

Infibeam Avenues Limited to boost Artificial Intelligence (“AI”) Hub initiative with potential INR 300 crore acquisition of GIFT Tower-Two.

July 07, 2024 - Infibeam Avenues Limited, an Indian multinational AI-powered fintech company, is set to enhance its AI Hub at GIFT City through the potential acquisition of GIFT Tower Two for INR 300 crore. This strategic move follows Infibeam Avenues Ltd.'s earlier commitment at the Vibrant Gujarat Summit 2024, wherein it signed a Memorandum of Understanding (“MoU”) with the Gujarat Government to enhance its AI initiatives.

Source: Financial Express

Four foreign currencies added to the list of ‘specified foreign currencies’ for transactions of financial services in GIFT IFSC.

July 04, 2024 – IFSCA has amended the first schedule to the International Financial Services Centres Authority (Banking) Regulations, 2020 (“IFSCA Banking Regulation”). This amendment adds 4 (four) foreign currencies—Swedish Krona (SEK), Norwegian Krone (NOK), New Zealand Dollar (NZD), and Danish Krone (DKK)—to the list of 'specified foreign currencies'. These currencies are designated for foreign currency transactions within GIFT IFSC, as provided under Section 20 of the IFSCA Act, 2019 read with Regulation 2(n) of the IFSCA Banking Regulation.

Source: Gift IFSCA website, International Financial Services Centres Authority Banking (Amendment) Regulations, 2024 dated July 04, 2024

IFSCA introduced a fee structure for the entities involved in permissible activities under IFSCA (Book-keeping, Accounting, Taxation and Financial Crime Compliance Services) Regulations, 2024 (“BATF Regulations”) in IFSC.

July 03, 2024 – IFSCA introduced a fee structure applicable to the entities that are to be registered under BATF Regulations. Further, the existing ancillary service providers currently undertaking bookkeeping, accounting, taxation or financial crime compliance services from GIFT IFSC, and which have informed IFSCA of their intention to operate under BATF Regulations for the same activity, are exempted from paying application fees. Additionally, for these entities, the applicable annual fees/ recurring fees under the BATF Regulation will be adjusted to the extent of fees already paid by them under the ancillary services framework from the date of submission of their intention.

Source: Gift IFSCA website, Circular dated July 03, 2024

Contributors to the newsletter:

• Manoj Panzade, Partner
• Gaurav Prakash, Associate