– Siddarth Goel (firstname.lastname@example.org)
The stage of development of financial markets infrastructure in a country, amongst many other things, is a mirror of sound legal regulations, corporate governance, judicial certainty, and debtor protection regime within the country. The inflow of global capital is quintessential for financial markets development and allocation of adequate capital resources in growth sectors. In a move to make India a hub for global capital flow, Gujarat International Finance Tech-City (GIFT) has been established as a globally benchmarked International Financial Service Centre (GIFT-IFSC). GIFT-IFSC is India’s first dominant gateway for global capital flows in and out of the country. The GIFT IFSC supports a gamut of financial services inter alia, banking, insurance, asset management, and other financial market activities. Prior to dealing with the regulatory framework governing financial units established in GIFT-IFSC, it is important to understand the broad function of an IFSC.
IFSCs are the Offshore Financial Centers (OFCs) that cater to customers outside their own jurisdiction. IMF defines OFCs as any financial center where the offshore activity takes place. However, this does not limit financial institutions in OFCs from undertaking domestic transactions. Therefore practical definition propounded by IMF is;
“OFC is a center where the bulk of financial sector activity is offshore on both sides of the balance sheet, (that is the counterparties of the majority of financial institutions liabilities and assets are non-residents), where the transactions are initiated elsewhere, and where the majority of the institutions involved are controlled by non-residents.”
Units set up in GIFT-IFSC can broadly be categorised on the basis of business activity intended to being undertaken by the entity.
This write-up covers regulations governing banking and financial services undertaken by Banking Units and Finance Companies set up in IFSC. The first part touches upon the benefits of setting up a unit in IFSC. The second part covers Banking Units and permitted financial activities. The third part covers Financial Companies in IFSC along with permissible activities and capital requirements. The fourth part covers financial service transactions to and fro between a financial unit based in IFSC and domestic tariff area (DTA). The last part deals with the applicable KYC/PMLA compliances and the currency of transactions with units based in IFSC.