CS Professional · IFSCA - Regulations, Listing and Compliances

International Financial Services Centres: An Introduction: formula sheet

Full chapter guide

Key formulas

Meaning of IFSC: IFSC = a centre set up under section 18 of the SEZ Act, 2005 (before or after the IFSCA Act, 2019); Definition in section 3(1)(g) of the IFSCA Act, 2019.
Application of the Act: IFSCA Act, 2019 applies to IFSCs set up under section 18 of the SEZ Act, 2005; Section 2. Quote it when asked about scope.
Financial product (section 3(1)(d)): Securities + contracts of insurance + deposits + credit arrangements + foreign currency contracts (other than immediate-settlement currency exchange) + other notified products; The Central Government can notify more products.
Currency of transactions: Every transaction of financial services in an IFSC is in the foreign currency specified by regulations, in consultation with the Central Government; Section 20. This is the key difference from the domestic market.
Regulator's function: IFSCA develops and regulates financial products, financial services and financial institutions in IFSCs; Section 12(1).
Transfer of regulatory powers: Powers of appropriate regulators under the First Schedule Acts, relating to IFSC business, are exercised by IFSCA; Section 13(1).
Financial institution: Unit set up in an IFSC + engaged in rendering financial services in respect of any financial product; Section 3(1)(c). Both conditions must be met.
Financial product: Securities; contracts of insurance; deposits; credit arrangements; foreign currency contracts (other than immediately settled currency exchange); any other notified product; Section 3(1)(d). The Central Government can add products by notification.
Financial service: Dealing, deposits, safeguarding, insurance, asset management, investment schemes, record keeping, underwriting, credit information, payments, arrangements, advice or soliciting, any notified service; Section 3(1)(e) has sub-clauses (i) to (xiv). Learn them as a list.
International Financial Services Centre: Centre set up under section 18 of the Special Economic Zones Act, 2005, before or after commencement of the IFSCA Act; Section 3(1)(g).
Authority's duty: Develop and regulate financial products, financial services and financial institutions in IFSCs; Section 12(1).
Undefined words: Meaning taken from the Acts in the First Schedule; Section 3(2).
Modification of other laws: Central Government notification: provision does not apply, or applies with exceptions, modifications and adaptations; Section 31(1). Draft is laid before Parliament for 30 days under section 31(2).
Commencement: Section 1(2): on dates notified by the Central Government; different dates for different provisions; Sections 1 to 11 and others came into force on 27 April 2020, section 12 on 21 August 2020 and section 13 on 1 October 2020.
Nature of the Authority (Section 4): Body corporate + perpetual succession + common seal; can contract, hold property, sue and be sued; Established by Central Government notification. Head office decided by notification; other offices need prior Central Government approval.
Composition (Section 5): 1 Chairperson + 4 regulator nominees (RBI, SEBI, IRDAI, PFRDA) + 2 Finance Ministry officials + 2 Selection Committee Members = 9 Members; Regulator nominees and Ministry officials are ex officio. Only the Chairperson must be whole-time; the two Selection Committee Members may be whole-time or part-time.
Term and age limits (Section 6): Term: 3 years, eligible for re-appointment. Age limit: Chairperson 65 years; whole-time Member 62 years; No one holds office as Chairperson after 65 or as whole-time Member after 62.
Resignation and removal (Section 6): Resign by written notice to Central Government of at least 3 months; or removal under Section 7; Applies to Members, as stated in Section 6(3).
Cooling-off (Section 6(4)): 2 years after ceasing office: no Central/State Government employment or IFSC financial institution appointment without Central Government's previous approval; Does not apply to ex officio Members.
Functions (Section 12): Develop and regulate financial products, financial services and financial institutions in IFSCs; Includes recommending new products to the Central Government and regulating products notified by it.
Powers (Section 13): Powers of the appropriate regulator under First Schedule Acts are exercised by IFSCA in IFSCs; Applies despite any other law. Central Government can amend the First Schedule by notification, laid before Parliament.
Penalties (Section 13(5), (6)): Collected in foreign currency equivalent at the RBI-notified rate on the date of the order; credited to the Consolidated Fund of India in rupees; Applies to penalties, fines, fees and settlement amounts.
Who exercises the power: Central Government, by notification (section 31(1)); Not IFSCA. IFSCA regulates under section 12 and section 13; section 31 is the Centre's power.
Option (a): disapplication: Specified provisions shall not apply to financial products, services or institutions in an IFSC; Full exclusion for the IFSC.
Option (b): modified application: Specified provisions apply with such exceptions, modifications and adaptations as the notification specifies; Tailored application for the IFSC.
What can be modified: Provisions of any other Central Act, rules, regulations, notifications, orders or directions under it; Excludes provisions relating to making of rules or regulations.
Parliamentary control: Draft laid before each House for a total of thirty days (one session or successive sessions) (section 31(2)); If both Houses agree in disapproving, it is not issued. If both agree to a modification, it is issued only as modified.
Application of the Act (s. 2): IFSCA Act applies to IFSCs set up under section 18 of the SEZ Act, 2005; This is the link between the SEZ Act and the IFSCA Act.
Financial product (s. 3(1)(d)): securities; insurance contracts; deposits; credit arrangements; foreign currency contracts (not immediately settled exchange); notified products; Learn the six heads. The last one needs a Central Government notification.
Financial institution (s. 3(1)(c)): unit in an IFSC rendering financial services for any financial product; It must be a unit set up in an IFSC.
Duty of the Authority (s. 12(1)): develop and regulate financial products, financial services and financial institutions in IFSCs; Section 12(2) adds permitted-before-commencement items, notified items, recommending new items to the Central Government, and prescribed functions.
Transfer of regulatory powers (s. 13(1)): powers of the First Schedule regulators under their Acts are exercised by the Authority in IFSCs; Applies notwithstanding any other law, to the extent it relates to the regulation of products, services or institutions.
Modification of other Acts (s. 31): Central Government notification: not apply, or apply with exceptions, modifications, adaptations; Draft must be laid before Parliament for 30 days. The power excludes provisions on making rules or regulations.
Currency of transactions (s. 20): every financial services transaction in an IFSC is in the foreign currency specified by regulations, in consultation with the Central Government; Penalties are collected in foreign currency equivalent (s. 13(5)) but credited to the Consolidated Fund of India in rupees (s. 13(6)).

Quick revision

IFSC means a centre set up under section 18 of the Special Economic Zones Act, 2005, before or after the Act's commencement.
The Act applies to IFSCs set up under section 18 of the SEZ Act, 2005 (section 2).
Financial product: securities, contracts of insurance, deposits, credit arrangements, certain foreign currency contracts, and any product notified by the Central Government.
Foreign currency contracts exclude contracts to exchange one currency for another that are settled immediately.
Financial institution means a unit set up in an IFSC that renders financial services for a financial product.
The Authority is a body corporate with perpetual succession and a common seal, and can sue and be sued (section 4).
Offices of the Authority outside its head office, in India or abroad, need prior Central Government approval.
Section 12: the Authority's duty is to develop and regulate financial products, services and institutions in IFSCs.
Section 13: powers of regulators listed in the First Schedule are exercised by the Authority in IFSCs; penalties are realised in foreign currency equivalent and credited in rupees to the Consolidated Fund of India.
Section 21: the Authority is bound by written policy directions from the Central Government; the Government's decision on what is policy is final.
Section 23: the Authority can delegate its powers except the power under section 28 (regulations).
Section 31: the Central Government may by notification disapply or modify other Central laws for IFSCs, but not provisions on making rules or regulations; the draft is laid before Parliament for thirty days.

Common mistakes

Saying IFSC is created under the IFSCA Act, 2019. Fix: An IFSC is set up under section 18 of the SEZ Act, 2005. The IFSCA Act, 2019 creates the regulator and governs the business.
Writing that IFSC transactions are in rupees. Fix: Section 20 requires transactions of financial services in an IFSC to be in the foreign currency specified by regulations.
Treating every unit in GIFT City as a financial institution. Fix: Quote section 3(1)(c): the unit must also render financial services in respect of a financial product.
Including all foreign currency transactions as financial products. Fix: Remember that contracts to exchange one currency for another settled immediately are excluded.
Saying the Authority has nominees from RBI, SEBI and IRDAI only. Fix: Remember four nominees: RBI, SEBI, IRDAI and PFRDA, each ex officio.
Stating that all Members must be whole-time. Fix: Only the Chairperson must be whole-time. The two Selection Committee Members may be whole-time or part-time.
Saying IFSCA modifies other Acts under section 31. Fix: Section 31 says the Central Government. IFSCA's powers sit in sections 12 and 13.
Saying the other Act is amended by Parliament or that the notification repeals it. Fix: The Act stays unchanged elsewhere. The notification only disapplies it or adapts it for IFSC financial products, services and institutions.
Saying the SEZ Act regulates financial services in an IFSC. Fix: The SEZ Act sets up the centre. The IFSCA Act regulates the financial products, services and institutions.
Listing entity types as if the IFSCA Act names them. Fix: Cite the section 3 definitions for the Act, and attribute entity-wise conditions to IFSCA regulations.

Exam tips

Begin every answer with the statutory definition and cite section 18 of the SEZ Act, 2005.
In comparison questions, use four or five labelled points and end with a one-line conclusion.
Do not quote figures or dates for global IFSCs unless certain. Reasoned features score better than doubtful data.
Remember section 20 on foreign currency and section 31 on modifying other enactments. These are the usual points tested.
Case-based questions: state the provision, apply it to the facts, then conclude.
Write the section number with each definition only where certain: sections 3, 12, 13, 31 and 1 are safe from the supplied text.
In case questions, show the three tests of location, activity and product before concluding.
Practise writing the financial service list in grouped form so you can reproduce it quickly.