Page 33 - May2019_BarJournal

INTERNATIONAL LAW

House, it is deemed rejected. Once it is returned On February 12, 2019, the Union Cabinet Benefits for setting up IFSCs for foreign
to the originating House, the amendments approved the establishment of a Unified Regulator investors include:
suggested by the other House are considered, (“Authority”) for regulating all the financial • State-of-the-art infrastructure on par with
and the originating House has the option to accept services in IFSCs through the International other global financial centres
the amendments or reject them. When both Financial Services Centre Authority Bill, 2019 • Liberal tax regime for 10 years
Houses are not in agreement, the President may (“IFSC Bill”) in the Rajya Sabha, which was • Strong regulatory and legal environments
initiate a joint sitting of the Houses. Thus, a bill drafted by Department of Economic Affairs • A wholly transparent operating
is a statute in draft form, and cannot become law and Ministry of Finance. Since the IFSC Bill environment, complying with global best
unless it receives the approval of both Houses of is a federal bill, it will require approval of both practices and internationally accepted laws
Parliament and the President’s assent. Houses and assent of President of India to and regulatory processes
An international financial services centre (IFSC) become law of the land. • A modern transport, communications and
caters to customers outside the jurisdiction of The IFSC Bill is applicable to all IFSCs set internet infrastructure
domestic economy, dealing with flows of finance, up under Section 18 of the Special Economic • The only place in India that allows offshore
financial products and services across borders. It Zone Act, 2005 (SEZ Act). A Special Economic transactions
acts as a global financial hub and supports a host Zone (“SEZ”) is a geographical region that has India’s first IFSC is established at Gujarat
of financial services including banking, capital more liberal economic laws than the country’s International Finance Tec-City (GIFT City),
markets and insurance. Some of the services that an typical economic laws. SEZs are established to Gandhinagar, Gujarat, by the state government
IFSC may provide are: (i) wealth management; (ii) support development, promote rapid economic under the SEZ Act, bringing together world
global tax management and cross-border tax liability growth by providing tax, and provide business class infrastructure, connectivity, people and
optimization, which provides a business opportunity incentives for attracting foreign technology technology on a single platform for businesses
for financial intermediaries, accountants and law along with investment. These are not merely across the world. It seeks to bring to India,
firms; (iii) global and regional corporate treasury SEZs, but may be called as “favored investment financial services transactions that are currently
management operations that involve fund-raising, destinations” for foreign establishments. The carried on outside India by overseas financial
liquidity investment and management and asset- IFSC Bill and the SEZ Act both defines IFSCs institutions and overseas branches/subsidiaries
liability matching; (iv) risk management operations the same way, as defined in the SEZ Act and, of Indian financial institutions to a centre, a
such as insurance and reinsurance; (v) merger accordingly, it means any centre as the Central location physically on Indian soil, that has
and acquisition activities among trans-national Government may approve and prescribe the been designated for all practical purposes as
corporations; (vi) asset management and global requirements for setting up and operation a location having the same eco-system as its
portfolio diversification undertaken by pension of the same. present offshore location.
funds, insurance companies and mutual funds. The IFSC Bill establishes a unified authority With the pilot launch of GIFT City, IFSC
to develop and regulate the financial services participants experience issues regarding
market in the International Financial Services registration with multiple regulators where
Centres in India, and for matters connected services transgress jurisdiction of one regulator
therewith or incidental thereto. The Authority to the other. These issues not only lead to
shall consist of a Chairperson, one Member each the reduced ease of doing business, but, more
to be nominated by RBI, SEBI, IRDAI and the importantly, to the risk of matters falling
Pension Fund Regulatory and Development through the cracks, especially when they fall
Authority (PFRDA), two members to be in-between jurisdictions of such separate
nominated by the Central Government and two regulators. It is hoped that the IFSC Bill will
Presently, in India, the banking, capital market other full-time or part-time members. All powers help resolve these growing pains, and a more
and insurance sectors are regulated by multiple exercisable by the above mentioned financial comprehensive view is achieved that will further
authorities: the Reserve Bank of India (RBI) for banks, sector regulators under the respective Acts shall expedite the growth of the IFSC to make them
the Securities and Exchange Board of India (SEBI) be solely exercised by the Authority in the IFSCs globally competitive.
for capital markets, and the Insurance Regulatory in so far as the regulation of financial products,
and Development Authority of India (IRDAI) for financial services and FIs that are permitted. The
insurance corporations. With an aim to augment transactions of financial services in the IFSCs Renuka Raman, Esq. is the managing
the “ease of doing business”, a unified regulator shall be done in the foreign currency as specified partner of Renuka Raman, Esq LLC.
for IFSC will align domestic IFSCs with any other by the Authority in consultation with the Central She received her masters in business
international financial services centre, and ensure Government. With the introduction of IFSC, law from The Ohio State University
targeted and cohesive regulation of IFSCs. An IFSC commercial banks would be allowed to open and is licensed in the United States
brings to India the financial services and transactions offshore banking units (OBUs) within SEZs, (State of Ohio and State of New York), India and the
that are currently carried out in offshore financial which are deemed as overseas branches. Such United Kingdom, and has over 10 years experience
centers by Indian corporate entities and overseas OBUs can trade in foreign currencies in overseas handling matters relating to corporate law and
branches or subsidiaries of financial institutions (FIs). markets and also with Indian banks, raise funds international transactions. She has been a CMBA
It provides business and regulatory environments that in foreign currency as deposits and borrowings member since 2015 and is Vice Chair of the CMBA’s
are comparable to other leading international financial from non-resident sources and provide loans International Law Section. Renuka can be reached
centres in the world, such as London and Singapore. and liability products for clients. at (440) 381-2593 or raman.renuka@gmail.com.
May 2019 Cleveland Metropolitan Bar Journal | 33