International Financial Services Centre (IFSC)

What is an International Financial Services Centre (IFSC)?

An IFSC caters to customers outside the jurisdiction of the domestic economy.
Such centres deal with flows of finance, financial products and services across borders.
London, New York and Singapore can be counted as global financial centres.
The SEZ Act 2005 allows setting up an IFSC in an SEZ or as an SEZ after approval from the central government.

History of IFSC

An expert panel headed by former World Bank economist Percy Mistry submitted a report on making Mumbai an international financial centre in 2007. However, the global financial crisis that unfolded in 2008 made countries including India cautious about rapidly opening up their financial sectors.

What does an International Financial Services Centre require?

Rational legal regulatory framework
Sustainable local economy
Stable political environment
Developed infrastructure
Strategic location
Good quality of life

What are the services International Financial Services Centre can provide?

Fund-raising services for individuals, corporations and governments
Asset management and global portfolio diversification is undertaken by pension funds, insurance companies and mutual funds.
Wealth management
Global tax management and cross-border tax liability optimization, provide a business opportunity for financial intermediaries, accountants and law firms.
Global and regional corporate treasury management operations that involve fund-raising, liquidity investment and management and asset-liability matching
Risk management operations such as insurance and reinsurance
Merger and acquisition activities among trans-national corporations

Other features of International Financial Services Centre

Gujarat International Finance Tec-City Co. Ltd is being developed as the country’s first international financial services centre (IFSC). '

Commercial banks are allowed to open offshore banking units (OBUs) within SEZs, which are deemed as overseas branches. Such OBUs can trade in foreign currencies in overseas markets and also with Indian banks, raise funds in foreign currency as deposits and borrowings from non-resident sources and provide loans and liability products for clients. State Bank of India set up its first OBU at Santacruz Electronics Export Processing Zone in Mumbai, in 2003.

International Financial Services Centres Authority (IFSCA) Bill, 2019

The Bill provides for the establishment of an IFSC Authority to develop and regulate the financial services market in the IFSCs set up in Special Economic Zones in India. IFSCA was established in April 2020 HQ at GIFT City, Gandhinagar, Gujarat. The Bill will apply to all IFSC set up under SEZ Act, 2005.
Prior to the establishment of IFSCA, the domestic financial regulators, namely, RBI, SEBI, PFRDA and IRDAI regulated the business in IFSC.
IFSCA will contain 9 members appointed by the Central Govt with a term of 3 years and re-appointment.
Members: Chairperson, 4 members nominated from RBI, SEBI, IRDAI and PFRDA; 2 officials of MoF and 2 members on the recommendation of Selection Committee.

Functions of the IFSCA include:

Regulating financial products, financial services, and financial institutions in an IFSC which have been approved by any regulator (such as the RBI or SEBI), before the enactment of the Bill,
Regulating any other financial products, services, or institutions in an IFSC, which may be notified by the central government, and
Recommending to the central government, any other financial services, products, or institutions which may be permitted in an IFSC.
The Bill sets up the International Financial Services Centres Authority IFSC Fund.
All transactions of financial services in IFSC will be death in such foreign currency as IFSCA in consultation with Central Govt specifies.

Source: AspireIAS Notes

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