IFSCA sets up committee for international retail business development
3 min read . Updated: 03 Aug 2020, 06:55 PM ISTThe seven-member committee will need to submit its report within three months
The work to build-up international financial services centre (IFSC) as a credible international jurisdiction and go to gain from the changing geo-political situation has picked-up steam. On Monday, International Financial Services Centres Authority (IFSCA) regulator for IFSC set up a committee for international retail business development.
The seven-member committee will need to submit its report within three months. The committee has been tasked to suggest how to develop international retail business in IFSC along with potential strategies for making IFSC attractive for international financial services.
“To provide roadmap for the future growth of international retail business in IFSC," said IFSCA in a press statement.
Mint had reported on 24 July that due to Hong Kong’s ability to function as a global financial centre in doubt after China tightened its grip on the city, India is trying to promote IFSC situated at Gujarat International Finance Tech (GIFT) City as an alternative for investors.
IFSCA which was set up in April this year is working to provide an efficient and facilitative regulatory system comparable with the best jurisdictions in the world, to develop IFSC in India as a preferred global hub for international financial services.
“Apart from channelizing India’s offshore business to the IFSC located at GIFT City and making it the gateway for India centric international financial services, the objective is to make it a global hub for international financial services on the lines of London, Hong Kong, Singapore and Dubai," said IFSCA in the press statement.
The five major reform areas being considered is launch of more products at IFSC, extending the liberalized remittance scheme (LRS) for derivatives trading and margin payments, a one-point local dollar clearing mechanism, facilitating retail non-resident Indian participation and doing away with requirements for setting up a broking or trading entity at GIFT.
The pressing issues for this panel will be to attract foreign firms to trade from IFSC and attract retail non-resident Indian (NRIs) clients.
Securities and Exchange Board of India (Sebi) norms require that any broker or trading member trading from IFSC needs to incorporate an entity at Gift, logic being that this will ring fence domestic exchange trading from trading at IFSC. On the other-hand Reserve Bank of India (RBI) and insurance regulator have allowed their regulated entities to open branch offices.
This need to register an entity at GIFT is a problem, according to experts.
“Most foreign investors already have their own FPI (foreign portfolio investor) entities incorporated outside of India, where it’s operations, management and infrastructure are already established and so from an administrative perspective we do not see the incorporation of an FPI in IFSC as an attractive option. Sebi registered FPIs, intending to operate in IFSC can do so without additional requirements. Several FPIs have their own investment criteria (with their investors) which set out the listing jurisdiction of instruments which can be invested in, and this also limits FPIs from investing in instruments listed in Gift City," said Nlioufer Lam, Partner, ZBA law firm.
In IFSC banks are not allowed to open savings accounts, which according to stakeholders is restricting participations of retail NRIs. IFSC Banking Units (IBUs) can open foreign currency current accounts of entities operating in IFSC and of non-resident institutional investors.
“Banks in Gift city not allowed to raise liabilities from individuals, which is preventing banks from considering it a viable proposition. IBUs also have to maintain LCR (Liquidity Coverage Ratio) as applicable to Indian banks on a stand-alone basis which is not required for bank subsidiaries set up in other jurisdictions. This is an additional cost," said a senior banker on condition of anonymity.
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