Nilesh Shah committee on International Financial Services Center (IFSC)

1. IFSC seeks to bring in India, those types of financial services and transactions that are currently carried on outside India by overseas FIs and overseas branches of Indian FI subsidiaries. It is also designated as a ‘deemed foreign territory’ which would have the same ecosystem as other offshore locations but is physically on Indian soil.
2. SEZ Act provides for the establishment of an IFSC in India within an SEZ in India and enables the Central Govt to regulate IFSC activities. SEBI, RBI, IRDAI and Dept of Financial Services issued the regulations for IFSC-GIFT under the provisions of SEZ Act, 2005.
3. Gujarat International Finance Tec-City Co. Ltd (GIFT) is being developed as the country’s first IFSC.
4. Any financial institution (or its branch) set up in the IFSC is
   1. Treated as an NRI located outside India.
   2. Conducting a business in foreign currency.
   3. Only 1 IFSC is approved in an SEZ.
   4. Nothing contained in any other regulations shall apply to a unit located in IFSC, subject to certain provisions.
5. Some of its major services include:
   1. Fund-raising services for individuals, corporations and govt.
   2. Asset management and global portfolio diversification are undertaken by pension funds, insurance companies and mutual fund
   3. Wealth management
   4. Global tax management and cross-border tax liability optimization
   5. Risk management operations such as insurance and reinsurance
   6. Merger and acquisition activities among transnational corporations etc.
6. Budget 2016-17 announced a tax regime for IFSC
   1. Tax exemptions for a period of 10 years.
   2. MAT reduced from 18.5% to 9%.
   3. Exemptions from DDT, STT, Commodities TT and Long terms CGT.
   4. Short-term capital gains tax is taxable at 15%.

International Financial Services Center (IFSC) Authority Bill, 2019

• Establishment of IFSC Authority: to develop and regulate the financial services market in the International Financial Services Centres set up under the Special Economic Zones Act, 2005.
• Composition of Authority: It will consist of 9 members appointed by the Central Govt- Chairperson;
  • 4 members to be nominated from RBI, SEBI, IRDAI and PFRDA;
  • 2 members from amongst officials of the Ministry of Finance;
  • 2 members are to be appointed on the recommendation of a Selection Committee.
• Functions: include Regulating financial products, financial services, and financial institutions in an IFSC.
• Transaction in foreign currency: As per the Bill, all transactions of financial services in IFSCs will be in such foreign currency as specified by the Authority, in consultation with the central government.
• Setting up an IFSC Authority Fund: All grants, fees and charges received by the Authority and all sums received by the Authority from various sources, as decided by the central government will be credited to this Fund.
• All the laws of the land, including the Prevention of Money-laundering Act, would apply and would be audited by CVC and CAG.
• Tax Holiday is given only for 10 years in IFSC.
• IFSC provides jurisdiction for carrying out International financial services domestically.
• No limit on the number of IFSCs that can be set up.

What is the news?

• The International Financial Services Centres Authority (IFSCA) has been established as a unified regulator to develop and regulate financial products, financial services and financial institutions in the International Financial Service Centres (IFSCs) in India.
• The Fund Industry has been playing an increasingly important role in intermediating between seekers of capital and investors.
• IFSC has been actively engaging with stakeholders to enhance the Global reach of GIFT-IFSC.
• The regulatory approach has been to benchmark with Global Standards and adopts a facilitative framework to provide ease of operations for seekers as well as providers of capital.
• IFSCA, in its endeavour to develop a comprehensive and consistent regulatory framework based on global best practices with a special focus on ease of doing business, has constituted an Expert Committee on Investment Funds to recommend to IFSCA on the road map for the fund's industry in the IFSCs.
• The Committee has been constituted under the Chairmanship of Mr Nilesh Shah, MD, Kotak Mahindra Asset Management Co. Ltd. The Committee comprises leaders from the entire Fund Management ecosystem including areas such as technology, distribution, legal, compliance, and operations.

Terms of reference of the Expert Committee:

• To recommend IFSCA on a long-term vision for operations of Investment Funds in IFSC.
• To make recommendations with respect to the structure of Investment Funds in IFSC. The recommendations may be two-fold:
  1. Short-term in nature that can be implemented by IFSCA immediately (i.e. less than 3 months). Such suggestions may fall under the exclusive regulatory purview of IFSCA.
  2. Recommendations that may be implemented in mid-term (6 months to 1 year). Such suggestions may also pertain to the regulatory purview of other regulators.
• To identify issues that may be critical for the development of the Investment Funds industry at IFSCs including inter-regulatory issues.
• Any other relevant item on building the ecosystem inter-alia on asset managers, hedge funds, PE, VC, sovereign funds, family offices, and the accompanying professional services.