IFSCA Ecosystem and Regulatory Framework: formula sheet

Key formulas

Meaning of IFSC

IFSC = centre set up under section 18 of the SEZ Act, 2005 (before or after the IFSCA Act)

Section 3(1)(g). Applies to GIFT City, India's first IFSC.

Financial product (section 3(1)(d))

Securities + contracts of insurance + deposits + credit arrangements + foreign currency contracts (not immediately settled exchanges) + other notified products

The Central Government can add products by notification.

Financial institution (section 3(1)(c))

Unit set up in an IFSC + renders financial services for a financial product

The unit must be in the IFSC.

Role of the Authority

Section 12: develop and regulate; Section 13: exercise powers of First Schedule regulators in the IFSC

Section 13 starts with 'notwithstanding anything contained in any other law'.

Currency rule

Section 20: transactions in the foreign currency specified by regulations, in consultation with the Central Government

Penalties are collected in the foreign currency equivalent under section 13(5).

Modification of other laws

Section 31: Central Government notification can disapply or modify other Central Acts for IFSCs

Draft laid before Parliament for 30 days.

Establishment (Section 4)

Central Government + notification → Authority named International Financial Services Centres Authority

Body corporate with perpetual succession and a common seal; can sue and be sued by its name.

Main duty (Section 12(1))

Duty = develop + regulate financial products, financial services and financial institutions in IFSCs

Done by such measures as the Authority deems fit, subject to the Act.

Financial product (Section 3(1)(d))

Securities; contracts of insurance; deposits; credit arrangements; foreign currency contracts (other than immediately settled currency exchange); any other product notified by the Central Government

Six limbs in all.

Financial institution (Section 3(1)(c))

Unit set up in an IFSC + engaged in rendering financial services in respect of any financial product

Both conditions must be met.

Unified powers (Section 13(1))

Powers of appropriate regulator under First Schedule Acts → exercised by Authority in IFSCs

Applies to regulation of financial products, services or institutions. Opens with 'notwithstanding anything in any other law'.

Application of procedures (Section 13(4))

Procedures of First Schedule Acts apply mutatis mutandis

Covers filings, inspection, investigation, prosecution, settlement, compounding, adjudication, appeals, and fees, fines and penalties.

Penalty collection (Section 13(5) and (6))

Collected in foreign currency equivalent; sums realised credited to the Consolidated Fund of India in rupees

Exchange rate is the RBI rate on the date of the order.

Total strength of the Authority

1 Chairperson + 4 regulator nominees + 2 Finance Ministry officials + 2 Selection Committee Members = 9 Members

Section 5(1). Count clause by clause: (a) 1, (b) 4, (c) 2, (d) 2.

Regulator nominees (clause (b))

One Member each from RBI, SEBI, IRDAI and PFRDA, ex officio

They are nominated by the regulators but appointed by the Central Government.

Finance Ministry Members (clause (c))

Two officials of the Ministry dealing with Finance, nominated by the Central Government, ex officio

Nominated by the Central Government itself, not by any regulator.

Independent Members (clause (d))

Two Members appointed by the Central Government on the recommendation of a Selection Committee

Only these two may be whole-time or part-time, as the Central Government deems fit.

Whole-time or part-time

Chairperson: whole-time. Clause (d) Members: whole-time or part-time

Section 5(2). The Act does not say that ex officio Members are whole-time.

Qualification test

Ability, integrity and standing + capacity in financial sector matters or special knowledge or experience of law, finance, economics, accountancy, administration or another useful discipline

Section 5(3). Judged by the Central Government's opinion for the 'other discipline' limb.

Selection Committee

Members and manner of constitution as prescribed

Section 5(4), read with Section 27(2)(a) (rule-making power).

Duty of the Authority (Section 12(1))

Develop and regulate financial products, financial services and financial institutions in IFSCs, by such measures as it deems fit

Subject to the provisions of the Act. Section 12(2) is without prejudice to this general duty.

Term of office (Section 6(1))

Chairperson and Member: 3 years from entering office; eligible for re-appointment

Proviso: no Chairperson after age 65; no whole-time member after age 62.

Resignation (Section 6(3)(a))

Written notice to the Central Government of not less than 3 months

Removal is separately under Section 7.

Post-service restriction (Section 6(4))

For 2 years after ceasing office, no employment under the Central or a State Government, and no appointment in a financial institution in the IFSCs, without previous approval of the Central Government

Does not apply to ex officio Members.

Removal grounds (Section 7)

(a) insolvent; (b) physically or mentally incapable; (c) convicted of offence involving moral turpitude in the Central Government's opinion; (d) financial or other interest prejudicial to functions; (e) abuse of position making continuance detrimental to public interest

Hearing is required only for clauses (d) and (e).

Decisions at meetings (Section 8(3))

Majority of Members present and voting; on a tie, Chairperson (or the person presiding) has a casting vote

If the Chairperson cannot attend, the Members present choose one of themselves to preside.

Interested Member (Section 8(4))

Disclose interest in writing as soon as possible; disclosure recorded in proceedings; Member takes no part in deliberation or decision on that matter

Applies to direct or indirect interest.

Supersession (Section 22)

By notification, with reasons, for a period not exceeding 6 months, after a reasonable opportunity to the Authority to make representations

Chairperson and Members vacate office; the Authority must be reconstituted by the end of the period; the notification and report are laid before Parliament.

Application

IFSCA Act applies to IFSCs set up under section 18 of the SEZ Act, 2005 (section 2)

SEZ Act creates the centre; IFSCA Act regulates financial business in it.

Overriding effect

Section 30: the provisions of the Act prevail over inconsistent provisions of any other law or of any instrument having effect under any other law

The override is given to the Act's own provisions. A regulation does not carry it; a regulation must be consistent with the Act and rules (section 28).

Rules vs regulations

Rules: Central Government (section 27). Regulations: IFSCA, consistent with Act and rules (section 28)

Each is laid before Parliament after it is made, for 30 days (section 29). If both Houses agree to modify or annul it, it takes effect only in modified form or is of no effect, without affecting anything done earlier.

Modification of other enactments

Section 31: notification may disapply, or apply with exceptions, modifications and adaptations, other Central Acts in an IFSC

Draft must be laid before each House for 30 days; excludes provisions on making rules or regulations.

Savings

Section 34: existing rules, regulations and notifications under Central Acts continue if relating to matters in this Act and not inconsistent, until superseded

Explains why older SEBI or RBI instruments can still apply in an IFSC.

Other regulators on the Authority

One Member each from RBI, SEBI, IRDAI, PFRDA, ex officio (section 5(1)(b))

Plus a Chairperson, two finance Ministry officials and two other Members.

Definition fallback

Undefined terms take the meaning in the Acts in column (3) of the First Schedule (section 3(2))

Appropriate regulator means a regulator specified in the First Schedule.

Section 15: Fund

Credits: grants, fees, charges + sums from sources decided by Central Government. Application: pay of Members, officers, employees + other expenses

The Fund is called the International Financial Services Centres Authority Fund.

Section 16: Accounts and audit

Authority keeps accounts → CAG audits → report to Central Government → laid before each House of Parliament

Form of accounts is prescribed by Central Government in consultation with CAG. Authority pays audit expenses.

Section 13(5)-(6): Penalty money

Collected in foreign currency equivalent (RBI rate on date of order); credited to Consolidated Fund of India in rupees

Applies to penalties, fines, fees and settlement amounts; the crediting rule covers sums realised by way of penalties or fines.

Section 27 vs Section 28

Rules: Central Government. Regulations: Authority, consistent with Act and rules

Section 27(2)(d) covers the form of accounts; Section 28(2)(f) covers foreign currency for transactions.

Section 22: Supersession

Period not exceeding 6 months; notification with reasons; reasonable opportunity to Authority first

Grounds: circumstances beyond control, persistent default with deterioration, or public interest. Authority must be reconstituted by the end of the period.

Section 32: Removal of difficulties

Order by Central Government; none after 5 years from commencement

Orders must be laid before each House of Parliament.

Section 23: Delegation

Delegate to Member or officer by written order, except powers under Section 28

Committees of Members may be formed and given powers as specified by regulations.

Quick revision

• IFSCA is established by Central Government notification under section 4 of the IFSCA Act, 2019.
• It is a body corporate with perpetual succession and a common seal, and it can sue and be sued.
• Its head office is where the Central Government decides by notification; other offices need prior Central Government approval.
• Section 5: a Chairperson plus Members nominated by RBI, SEBI, IRDAI and PFRDA, two finance ministry officials, and two Members on a Selection Committee's recommendation.
• The Chairperson is whole-time; the two selected Members may be whole-time or part-time.
• Term is three years with eligibility for re-appointment; the Chairperson cannot continue after sixty-five and a whole-time Member after sixty-two.
• A Member can resign on at least three months' written notice to the Central Government.
• Non-ex officio Members cannot take Central or State Government employment or an IFSC financial institution appointment for two years after office without Central Government approval.
• Section 13: IFSCA exercises the powers of regulators in the First Schedule within the IFSC; penalties are collected in foreign currency equivalent and credited to the Consolidated Fund of India in rupees.
• Accounts are audited by the CAG, and the Performance Review Committee reviews the Authority at least once every financial year.
• Members, officers and employees are deemed public servants when acting under the Act.

Common mistakes

• Treating GIFT City and IFSC as the same thing in every sense. Fix: Write that an IFSC is the legal category and GIFT City is India's first IFSC.
• Saying the SEBI, RBI or IRDAI regulates everything in GIFT City. Fix: Say the IFSCA regulates financial products, services and institutions in the IFSC and exercises the powers of those regulators under section 13.
• Saying IFSCA is established by Parliament or by its own regulations. Fix: Write that the Central Government establishes it by notification under Section 4(1).
• Treating IFSCA as a regulator for all of India. Fix: State that it operates in IFSCs set up under section 18 of the Special Economic Zones Act, 2005, and regulates financial products, services and institutions there.
• Saying RBI, SEBI, IRDAI and PFRDA appoint their own Members. Fix: Write that the regulators nominate, but the Central Government appoints all Members under Section 5(1).
• Leaving out PFRDA or listing only three regulators. Fix: Use the four-regulator list: RBI, SEBI, IRDAI, PFRDA.
• Saying every removal needs a hearing. Fix: The proviso to Section 7 requires a reasonable opportunity of being heard only for clause (d) and clause (e).
• Mixing up the age limits of 65 and 62. Fix: Chairperson: not after 65. Whole-time member: not after 62.
• Saying section 30 means RBI, SEBI, IRDAI and PFRDA laws never apply in an IFSC. Fix: Section 30 overrides only inconsistent provisions. Other laws apply unless inconsistent, and section 31 and section 34 decide the detail.
• Saying IFSCA makes rules and the Central Government makes regulations. Fix: Rules come from the Central Government (section 27). Regulations come from IFSCA (section 28).

Exam tips

• Open every answer with the legal base: section 18 of the SEZ Act, 2005 and the IFSCA Act, 2019.
• Learn the section 3 definitions closely, as case questions test whether a facts pattern is a financial product, service or institution.
• Cite section numbers only when sure: 3, 4, 12, 13, 20 and 31 are in your official text.
• Link answers to practice: authorisation by the IFSCA, foreign currency dealing and the unit located in the IFSC.
• End each case answer with a clear conclusion in one sentence.
• Quote Section 4(1) and 4(2) closely. Examiners reward the exact words: notification, body corporate, perpetual succession, common seal.
• Write 'develop and regulate' when asked for objectives. Pair it with Section 12(2) functions for a fuller answer.
• In case questions, apply both limbs of the financial institution definition to the facts before concluding.