Recently International Financial Services Centres Authority Bill 2019 has been approved by the union cabinet to set up a unified regulatory authority to regulate all financial services in India in International Financial Services Centres (IFSCs). So let’s begin;
The International Financial Services Centre is the institution which is involved in dealing with the flows of finance, financial products, and financial services across borders. This institution serves the customers outside the jurisdiction of the domestic economy. In India, the first International Financial Services Centre came into existence at GIFT City in Gandhinagar, Gujarat on 11th April 2015.
The primary purpose of setting up International Financial Services Centres is to promote the ease of doing business by bringing back the financial transactions carried out by the Indian business entities like “overseas branches or subsidiaries of Indian financial institutions” in offshore financial centers.
Currently, different sectors under IFSCs are regulated by their respective regulators like the banking sector is governed by the Reserve Bank of India (RBI), capital market sector is governed by the Securities and Exchange Board of India (SEBI) while the insurance sector is governed by the Insurance Regulatory and Development Authority of India (IRDAI). Hence, a high degree of inter-regulatory coordination is required in the IFSCs. There is also a requirement of continuous clarifications in the existing regulations which govern the financial products, financial services and transaction in IFSCs.
Therefore the Indian government realized the need for having a unified financial regulatory authority for IFSCs. The authority had been set up to provide a world-class regulatory environment for the participants in the financial market. The unified regulatory authority will also focus on the further development of IFSC in India.
For IFSC, an introduction of unified regulatory authority was expected by the stakeholders. Therefore on 6th February 2019, the unified regulatory authority has been set up for regulating the financial services. The International Financial Services Centres Authority Bill 2019 (Bill) has been introduced on 12 February 2019in the Rajya Sabha, for consideration.
Note: IFSCs Authority Bill
This step had been taken by the government to make the regulatory environment comparable with other international financial centers. If we talk about the current status then in International Financial Services Centres, different sectors like banking, insurance, and capital markets are regulated by RBI, IRDA, and SEBI respectively. Therefore inter-regulatory coordination is very significant for attaining object by the IFSCs. The introduction of one unified regulatory authority will make the regulatory environment better from the perspective of ease of doing business.
On this bill, an official said that
“The establishment of a unified financial regulator for IFSCs will result in providing a world-class regulatory environment to market participants from the ease of doing business perspective”.
There is a provision under the bill regarding the establishment of the unified regulatory authority. There will be one nominee in the regulatory bodies such as RBI, SEBI, and IRDA as its member however finance minister reserves the nomination rights of two officials. This bill will regulate the financial products, financial services and financial institution in IFSC. IFSC offers easier access to global financial markets to Indian companies.
The Department of Economic Affairs, Union Ministry of Finance has drafted an International Financial Services Centres Authority Bill in order to set up a separate unified regulatory authority for International Financial Services Centres (IFSCs). Now, let’s discuss some of the significant provisions defined under the bill.
If we talk about the management of the authority then it will have one chairperson and one Member which shall be nominated by the following:
Along with this, there will also be two members and two other whole-time / full-time/part-time members who will be nominated by the Central Government of India.
As per this bill, the chairman, as well as a member, shall hold office for a period of 3 years from the date officials entered into the office and for this period they shall be eligible for reappointment for the same period.
This unified regulatory authority is going to regulate financial services, financial products, and financial institutions in the International Financial Services Centre. The Financial Sector Regulators have permitted this.
This authority will also regulate other financial products, financial services or institutions which shall be notified by the Central Government in future. Authority may also recommend other financial products, financial services or institutions to the central government.
The Unified Regulatory Authority will exercise the same powers which other financial regulators have such as RBI, SEBI, IRDAI, under the respective Acts in the IFSCs.
The same process & procedure shall be followed by the authority in relation to financial products, financial services or financial institutions which are prescribed under their respective acts.
The Central Government may grant funds to the authority for the achievement of its purposes after due appropriation made by the Parliament.
In IFSCs, the authority specified in consultation with the Central Government that “the financial services transactions will be held in the foreign currency”.
The Department of Economic Affairs and the Ministry of Finance made an effort to streamline the financial services in India. This bill has considered the regulatory requirements of the IFSC. Along with this, it has also considered the existing provisions of the financial sector.
In a nutshell, the union cabinet approved the bill for the ease of doing business and to clarify the operational norms for establishing new businesses. This step of the government will address the issues arise in the financial sectors. Such issues may occur because of the dynamic nature of the business activities proposed in the IFSCs.
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