IFSCA (International Financial Services Centre Authority) has vide its circular dated 19th January 2022 given two more recognition to PCS (Practising Company Secretaries) in India.
One is where qualified entities seeking registration as “qualified jewellers” for importing gold through the international bullion exchange, have to submit a certificate from a PCS that 90% of the average annual turnover of the applicant entity in the last three financial years have come from the precious metals business.
Second is where the PCS is allowed to issue a net worth certificate to the applicant entity under this scheme.
Of course, both CA and CMA members in practice have also been given this recognition.
The salient features of the said circular is reproduced below:
In this context, it has been decided that the entities fulfilling the following conditions shall be considered as ‘Qualified Jewellers’ and shall be permitted to transact as trading members / clients of trading members, on IIBX, for the purpose of import of gold under the above-mentioned ITC(HS) codes: a. The entity shall be engaged in the business of goods falling under ITS(HS) codes 7108, 7113, 7114 and 7118 under Chapter 71 of ITC(HS); b. The entity must have filed due GST returns up to the preceding month prior to making an application to the IIBX. Further, a certificate should be submitted by the entity, duly attested by a practising chartered accountant or a practising cost accountant or a practising company secretary, stating that 90% of the average annual turnover in the last 3 financial years are through dealing in goods under precious metals; and c. The entity shall have a minimum net worth of ₹ 25 crore as per its latest audited financial statement. Net Worth Requirements
For the purpose of 2(c) above, the net worth shall be determined as follows: “Net Worth” means the aggregate value of the paid-up share capital (or capital contribution) and all reserves created out of the profits, securities premium account and debit or credit balance of profit and loss account, after deducting the aggregate value of the accumulated losses, deferred expenditure and miscellaneous expenditure not written off, as per the balance sheet, but does not include reserves created out of revaluation of assets, write-back of depreciation and amalgamation.
The entity shall provide the net worth certificate from a practising chartered accountant or a practising cost accountant or a practising company secretary.
The net worth specified above shall be maintained by the entity at all times. Fit and Proper criteria
The Qualified Jewellers shall comply with the ‘fit and proper criteria’ specified under regulation 52(2) of the International Financial Services Centres Authority (Bullion Exchange) Regulations, 2020, at all times.
In the IFSC Registration of Insurance Business Regulations, the IFSCA has amended the same by providing for certificate of compliance from Cost Accountant in practice in addition to certificate from either CS or CA. That is, either one of the three professional members are authorised to give a certificate of compliance with the requirements of registration of insurance business under IFSC.
Similar amendments has been brought about in the Insurance Intermediary regulations to provide for certificate from either of CA/CS/CMA in practice to confirm that application for registration meets with the guidelines specified by the IFSCA.
Both the notifications are available in the IFSC site.
Important circular from IFSCA which says that SWIFT operations shall be undertaken from the IBU, GIFT City, Gandhinagar by assigning the roles of maker and checker to suitable staff in IBU itself for ensuring the data confidentiality and data protection.
IBUs (International Banking Units in IFSC) have been directed to ensure compliance of the above on or before 31stMar2022.
IFSCA has vide its circular dated 16th December, 2021 clarified that settlement of trades executed on the stock exchanges in IFSC shall be executed at least once a day although reg 32(1) of the IFSCA (Market Infrastructure Institutions) Regulations, 2021 provides for settlement at least twice a day and working hours of 23 hours and 30 minutes for the stock exchanges in IFSC. Read on.
1.Regulation 32(1) of the IFSCA (Market Infrastructure Institutions) Regulations, 2021 state that the trading hours for all product categories shall be as decided by the recognised stock exchanges, based on cost-benefit analysis, but shall not exceed 23 hours and 30 minutes in a day and settlement shall be done at least twice a day.
2.With a view to keeping pace with the changing market dynamics in IFSC and to align the clearing and settlement process with international best practices, it has been decided that the settlement for all the trades being executed on the stock exchanges in IFSC shall be done at least once a day. The clearing corporations shall ensure that the risk management framework is in line with the CPMI IOSCO Principles for Financial Market Infrastructures (PFMIs) at all times.
3.The Clearing Corporations shall ensure that during the trading day/session, the Mark-to-Market losses on open futures contracts are collateralized at regular intervals based on risk assessment.
IFSCA has clarified the procedure for banking units to register themselves as investment bankers in the IFSC – GIFT city. Salient features are as under:
Regulation 3(4) of the CMI Regulations provides that IFSCA may specify norms for authorisation of capital market intermediaries in the IFSC. Considering that the investment banking activities in the capital markets are being carried out by banks or their associates in various jurisdictions globally, and with the purpose of facilitating ease of doing business, it has been decided that a banking unit licensed by the IFSCA shall be permitted to undertake investment banking activities in the IFSC, in accordance with the below framework: a) The banking unit shall intimate to the Authority before commencing operations relating to investment banking, along with fees, in the format provided in Annexure – I. b) The banking unit operating as an investment banker shall comply with all the provisions applicable to an investment banker in the IFSC, including obligations and responsibilities prescribed in the CMI Regulations, the requirements prescribed in this circular and such requirements as may be specified by the Authority from time to time.
c) The banking unit shall maintain arm’s length relationship between its investment banking activity and other activities.
All the investment bankers in the IFSC shall submit a report to IFSCA on a half-yearly basis, within 45 days, in the format provided in Annexure II.
All other details such as fees payable, manner of payment of fees etc. annexures are given in the said circular.
IFSCA has clarified vide this circular that disclosure of dealing in securities by the directors and key managerial personnel of market infrastructure intermediaries pertain specifically only to securities issued from GIFT CITY not the securities issued in domestic market like in BSE, NSE etc.
An example of poor drafting, i guess, this could have been sorted out at the first instance itself.
IFSCA has allowed vide its circular dated 25th November, 2021 global access to its broker dealers registered with itself. For more details read on.
Reference is drawn to the International Financial Services Centres Authority (Capital Market Intermediaries) Regulations, 2021 (CMI Regulations) published in the Official Gazette on October 20, 2021.
This circular is applicable on the broker dealers incorporated in the International Financial Services Centre (IFSC) and does not apply to foreign broker dealers operating in the form of branch in the IFSC.
It has been decided that registered broker dealers incorporated in IFSC shall be permitted to access exchanges in jurisdictions outside IFSC, subject to compliance with Chapter V of the CMI Regulations and the conditions laid out in this circular.
The broker dealer shall be permitted to access exchanges outside IFSC through any of the following manners: a) Cross-border arrangement with an entity providing access to an exchange outside IFSC, provided that such entity is a regulated entity in the other jurisdiction; or b) Registering itself as a trading member of an exchange outside IFSC: Provided that the broker dealer is trading on its proprietary account and does not have any client dealing.
The broker dealer shall seek a no-objection from the recognised stock exchange(s) in IFSC before availing global access. The recognised stock exchange(s) in IFSC may refuse to grant NOC if there are any regulatory concerns particularly with respect to risk management arising out of the activities of the broker dealer in the recognised stock exchange(s) in the IFSC.
Further, the recognised stock exchange(s) may either facilitate or restrict global access to any broker dealer based on their risk assessment emerging out of such access.
The broker dealer shall have adequate resources commensurate with its operations (including global access) within the IFSC.
The broker dealer providing global access shall comply with Chapter V of the CMI Regulations, including the following: a) The broker dealer shall ring fence its IFSC related capital market activities with its cross-border operations. The broker dealer shall ensure that the funds and securities of the clients for trading on the IFSC exchanges shall be segregated from the global access. b) The broker dealer shall ensure that true, correct and adequate disclosures (including risks) are made to its clients regarding its cross-border business. In this regard, the broker dealer shall ensure that the roles and responsibilities of all the entities involved in the global access, risks associated with such trades, the applicable dispute resolution mechanisms and investor grievance redressal mechanisms relating to global access shall be adequately disclosed to the clients.
The broker dealer providing global access shall ensure to categorically disclose to its clients that the following resources of the recognised stock exchanges in the IFSC shall not be available to the clients for their global access: i. Rights of investors or investor protection; ii. Dispute resolution mechanism; and iii. Investor grievance redressal mechanism.
The broker dealer having global access shall submit the following additional report to the recognised stock exchange(s) in accordance with the prescribed format, on an annual basis, within 30 days from the end of financial year: a) Information regarding global access: Details of no-objection received from recognised stock exchanges; Details of commencement of operations of global access (date, names of entities through which arrangement has been done for providing global access and their regulatory status, list of exchanges, types of securities, role and responsibilities of broker dealer). b) Information on size of business: Number of clients and trading volumes for each exchange (with breakup for each type of securities); Number of clients and trading volumes on the recognised stock exchanges in the IFSC (with break-up for each type of securities). c) Other material information: Details of any incidence of default on any exchange; Assessment and declaration of conflicts of interest arising out of the global access; Declaration that the broker dealer is not aware of any material adverse information relating to the global access that would impact the broker dealer.
IFSCA has vide its circular dated 17th September, 2021 allowed all members of stock exchanges and clearing corporation in the IFSC to become automatic members of the bullion exchange and bullion clearing corporation. All new members will have to follow the registration criteria and make fresh applications in this regard.
The existing members will be added subject, of course, to fulfilling the net worth criteria as is specified by the bullion exchange.
On-Boarding of existing registered members in GIFT-IFSC
IFSCA has received representation from market participants requesting for all registered trading members and clearing members of the stock exchanges and clearing corporations respectively to be grandfathered as members of the Bullion Exchange and Bullion Clearing Corporation. Accordingly, it has been decided to permit all members of the stock exchanges and clearing corporations in GIFT-IFSC to be enabled as Bullion Trading/ Clearing Members subject to the fulfilment of requisite net worth criteria as specified by the Authority. New entities desirous of operating as Bullion Trading/Clearing Members
New entities who intend to become Bullion Trading/Clearing Members shall follow the membership criteria and registration process for membership as determined by the Bullion Exchange /Bullion Clearing Corporation, subject to eligibility criteria as specified in IFSCA circular No. 415/IFSCA/Consolidated Operating Guidelines/2021-22 dated August 25, 2021. Net-Worth criteria
The net worth requirement for initial 6 months from the date of operationalization of Bullion Exchange shall be as under:
Base Minimum Capital
The Base Minimum Capital for initial 6 months from the date of operationalization of Bullion Exchange shall be as under:
Any entity desirous of operating as Bullion Trading/Clearing Member shall be a body corporate, incorporated in India or in a foreign jurisdiction.
Any entity desirous of functioning as a trading member / clearing member under the branch structure in GIFT-IFSC shall adequately ring fence the operational, technology and financial aspects of its branch in IFSC from its overseas operations.
IFSCA has vide its circular dated 15th September, 2021 allowed IFSCA recognized non bank custodians who have set up entity through their branch in IFSC GIFT City to become a clearing member. Earlier they had allowed overseas entities to operate as a clearing member through their branch office. So this i guess is for the Indian non bank custodians to operate as a clearing member through their branch office. Some conditions are stipulated as under:
Non-Bank Entity recognised as a custodian by IFSCA
Any non-bank entity recognised as a custodian of assets/securities by IFSCA through the branch structure, shall be permitted to become a Clearing Member of a Clearing Corporation in GIFT-IFSC. For this purpose, the entity shall comply with the following conditions: a) The entity can clear and settle trades only of its custodial clients b) The entity should be ring fenced financially, technologically, and operationally from its parent company and its functions, as a clearing member, shall be limited only to clearing and settlement services of its custodial clients. c) The entity shall ensure financial segregation by allocating funds to the tune of USD 1,500,000 (USD 1.5 mn) towards its clearing and settlement operations. The entity shall submit a declaration to the Authority in this regard. d) The entity shall participate in the Settlement Guarantee Fund contribution (SGF), as decided by the clearing corporation from time to time. e) The total exposure which the entity shall take on behalf of its registered clients shall be determined by its Board. Additional requirements
All the other fees applicable to a clearing member in GIFT-IFSC shall be applicable to such an entity.
The entity shall comply with all the necessary rules, bye-laws and guidelines prescribed by the clearing corporation with which it is registered as a clearing member and the Authority from time to time.
The entity shall have adequate mechanisms for the purposes of reviewing, monitoring, and evaluating the controls, systems, procedures and safeguards.
IFSCA has vide its circular dated 25th August, 2021 clarified that branches of Indian banks and branches of other financial institutions that are set up in IFSC Gift City are allowed to offer financial products linked to the Indian rupee. As per the RBI definition, these units are classified as “overseas entity”.
IFSCA has issued guidelines on factoring & forfaiting of receivables applicable to all Finance Companies operating in the IFSC and intending to undertake the activity of factoring & forfaiting of receivables. Gist of the guidelines are given below:
Applicability 3.1 These Guidelines shall be applicable to Finance Companies / Finance Units registered with the Authority under regulation 3 of the Regulations that are intending to undertake the activity of Factoring and Forfaiting of receivables. 3.2 Part I of these Guidelines shall be applicable to IFSC Banking Units (‘IBUs’) licensed by the Authority under IFSC (Banking) Regulations, 2020, to undertake permissible activities subject to such prudential regulations as may be applicable to them. 3.3 Part I of these Guidelines shall also be applicable to all participants registered on ‘ITFS Platform’ for undertaking permissible Factoring and Forfaiting transactions under the Framework for setting up of International Trade Financing Services Platform (‘ITFS’) for providing trade finance services at International Financial Services Centres (‘IFSCs’) dated July 9, 2021.
Definitions For the purpose of implementation of these Guidelines the following definitions shall be referred to: (i) “Assignment” means transfer by agreement to a factor of an undivided interest, in whole or in part, in the receivables of an assignor due from a debtor; (ii) “Assignee” means a factor in whose favour the receivable is transferred; (iii) “Assignor” means any person who is the owner of any receivable; (iv) “Debtor” means any person liable to the assignor, whether under a contract or otherwise, to pay any receivable or discharge any obligation in respect of the receivable whether existing, accruing, future, conditional or contingent; (v) “Factor” means an entity engaged in the factoring business in the IFSC and includes a Financier under ITFS framework; (vi) “Factoring business” means the business of acquisition of receivables of assignor by accepting assignment of such receivables or financing, whether by way of making loans or advances or otherwise against the security interest over any receivables but does not include: (a) credit facilities provided by an IBU or a Finance Company/Finance Unit in its ordinary course of business against security of receivables; (b) any activity as commission agent or otherwise for sale of agricultural produce or goods of any kind whatsoever or any activity relating to the production, storage, supply, distribution, acquisition or control of such produce or goods or provision of any services. (vii) “Financial Contract” means any spot, forward, future, option or swap transaction involving interest rates, commodities, currencies, shares, bonds, debentures or any other financial instrument, any repurchase of securities and lending transaction or any other similar transaction or combination of such transactions entered into in the financial markets; (viii) “Forfaiter” means an entity engaged in the forfaiting business in the IFSC and includes Financiers under ITFS framework; (ix) “Forfaiting business” means sale and purchase of the receivables on a without recourse basis, as permitted under these Guidelines; (x) “netting agreement” means any agreement among the system participants for the purpose of determination by the system provider of the amount of money or securities due or payable or deliverable as a result of setting off or adjusting the payment obligations or delivery obligations among the system participants, including the claims and obligations arising out of the termination by the system provider, on the insolvency or dissolution or winding up of any system participant or such circumstances as the system provider, may specify in its rules or regulations or byelaws (by whatever name called), of the transactions admitted for settlement at a future date so that only a net claim be demanded or a net obligation be owned; (xi) “Receivables” means the money owed by a debtor and not yet paid to the assignor for goods or services and includes payment of any sum (by whatever name called) required to be paid for the toll or for the use of any infrastructure facility or services. All other words and expressions used but not defined in these Guidelines shall have the same meaning respectively assigned to them under IFSC (Banking) Regulations, 2020, ITFS Framework and Finance Company Regulations. PART I Guidelines on Factoring and Forfaiting transactions A. Guidelines on Factoring of Receivables
Assignment of receivables 5.1 Any assignor may, by an agreement in writing, assign any receivable due and payable to him by any debtor, to any factor, being the assignee, for a consideration as may be agreed between the assignor and the assignee and the assignor shall at the time of such assignment, disclose to the assignee any defences and right of set off that may be available to the debtor. 5.2 On execution of agreement in writing for assignment of receivables, all the rights, remedies and any security interest created over any property exclusively to secure the due payment of receivable shall vest in the assignee and the assignee shall have an absolute right to recover such receivable and exercise all the rights and remedies of the assignor whether by way of damages or otherwise, or whether notice of assignment as provided in clause 6 below is given or not. 5.3 Where an assignment of receivables constituting security for repayment of any loan advanced by a creditor and where the assignor, with the written consent of such creditor, has given notice of such encumbrance to the assignee, on acceptance of such assignment, the assignee shall pay the consideration for such assignment to the creditor.
Notice to debtor and discharge of obligation of such debtor An assignee of a receivable shall not be entitled to demand payment of the receivable from the debtor in respect of such receivables unless notice of such assignment is given to the debtor by the assignor or the assignee along with express authority in its favor granted by the assignor.
Discharge of liability of debtor on payment to assignee Where a notice of assignment of receivable as stated in clause 6 above is given by the assignor or the assignee, as the case may be, the debtor on receipt of such notice, shall make payment to the assignee and payment made to such assignee in discharge of any obligation in relation to the receivables specified in the notice shall fully discharge the debtor making the payment, from corresponding liability in respect of such payment.
Payment made by debtor to assignor to be held in trust for benefit of assignee in certain cases Where no notice of assignment of receivables as stated in clause 6 above is given by the assignor or under his authority by the assignee, any payment made by the debtor in respect of such receivables to the assignor shall be held in trust for the benefit of the assignee which shall be forthwith be paid over to such assignee or its agent duly authorized in this behalf.
Assignor prohibition The conclusion by an Assignor regarding assignment of receivables with more than one assignee, at a time, in connection to the same invoice, is forbidden, and any such contracts shall be void. Any fraudulent breach of this provision shall be punishable in accordance with the provisions of the applicable law.
Rights and obligations of parties to contract for assignment of receivables Without prejudice to the provisions contained in any other law for the time being in force, the debtor shall have the right to notice of assignment as stated in clause 6 above, before any demand is made on it by the assignee and until notice is served on the debtor, the debtor shall be entitled to make payments to the assignor in respect of assigned receivables in accordance with the original contract and such payment shall fully discharge the debtor from corresponding liability under the original contract.
Liability of debtor Where a notice of assignment is served as stated in clause 6 above, the debtor shall, (i) intimate the assignee the details of the deposits or advance or payment on account made to the assignor before the receipt of notice of assignment and also provide any other information to the assignee relating to the receivable as and when called upon by the assignee to do so; (ii) not be entitled to a valid discharge of its liability in respect of assigned receivables, unless it makes the payment due on an assigned receivable to the assignee; (iii) in the event of delay in payment by it, pay the receivable along with the interest as per the original contract or as agreed between the parties.
Assignor to be trustee of assignee Notwithstanding anything to the contrary contained in any other law for the time being in force, where a debtor makes any payment to an assignor which represents payment due on an assigned receivable, such payment shall be deemed to be for the benefit of the assignee, and the assignor shall be deemed to have received the amount of such payment as a trustee of the assignee and the assignor shall make payment of such amount to the assignee.
Principle of debtor protection 13.1 Unless otherwise specified in these Guidelines, any assignment of the receivable shall not, without the express consent of the debtor in writing, affect the rights and obligations of the debtor (including the terms and conditions of the contract) 13.2 Consequent upon the assignment of receivables, the payment instruction under the contract entered into between assignor and debtor may modify the name of person, address or account to which the debtor is required to make payment, but such instructions shall not modify: (i) The amount of debt specified in the original contract. (ii) The date on which payment is to be made or other terms of the original contract relating to payment. (iii) The place specified in the original contract at which payment is to be made or in case no such place is mentioned in the contract, the place of payment to a place other than where the debtor is situated.
Defences and right of set off of debtor In a claim by the assignee against the debtor for payment of the assigned receivable, the debtor may raise against the assignee: (i) all defences and right of set off arising from the original contract, entered into between the assignor and debtor or any other contract that was part of the same transaction, of which the debtor could avail himself as if the assignment had not been made and such claim were made by the assignor instead of assignee. Provided that the assignee shall, unless otherwise agreed between the parties, be entitled to recover from the assignor, any loss suffered by it as a result of any such defences and right of set off being exercised by the debtor; (ii) any other right of set off, if it was available to the debtor at the time of notice of the assignment, as stated in clause 6 above, was received by the debtor.
Agreement not to raise defences or rights of set-off 15.1. The debtor may agree with the assignor in writing not to raise against the assignee, the defences and rights of set-off that it could raise pursuant to the above clause. Such an agreement precludes the debtor from raising against the assignee those defences and rights of set-off. 15.2. The debtor may not waive defences: (i) arising from fraudulent acts on the part of the assignee; or (ii) based on the debtor’s incapacity.
Modification of original contract 16.1 Any agreement made before service of notice of the assignment of a receivable, as stated in clause 6 above, between the assignor and the debtor that affects the assignee’s rights in respect of that receivable, shall be effective as against the assignee, and the assignee shall acquire rights in the assigned receivables, as modified by such agreement. 16.2 Any agreement made after notice of the assignment between the assignor and the debtor that affects the assignee’s rights shall be ineffective as against the assignee unless: (i) the assignee consents to it or, (ii) the receivable is not fully earned by performance and either the modification is provided for in the original contract or, in the context of the original contract, a reasonable assignee would consent to the modification. 16.3 Nothing contained in sub-clauses (16.1) and (16.2) shall affect any right of the assignor or the assignee arising from breach of an agreement between them.
Breach of Contract If the assignor commits any breach of the original contract with the debtor, such breach shall not entitle the debtor to recover from the assignee any sum paid by the debtor to the assignor or the assignee pursuant to the factoring transactions: Provided however that nothing contained in this clause shall affect the rights of the debtor to claim from the assignor any loss or damages caused to him by reason of breach of the original contract.
Provisions of these Guidelines not to apply in certain cases The provisions of factoring Guidelines shall not apply to any assignment of receivables arising under or from the following transactions, namely: (i) any merger, acquisition or amalgamation of business activities or sale or change in the ownership or legal status of business; (ii) any assignment of loan receivables by an IBU or Finance company/Finance unit to another IBU or Finance company/Finance unit; (iii) securitization transactions (including assignment of receivables to special purpose vehicles or trusts that issue securities against such receivables, bought from a single debtor or single group of debtors); (iv) financial contracts governed by netting agreements, except a receivable owed on the termination of all outstanding transactions; (v) transactions on a recognised exchange; (vi) foreign exchange transactions except receivables; (vii)inter-bank payment systems, inter-bank payment agreements or clearance and settlement systems relating to securities or other financial assets or instruments; (viii) bank deposits; (ix) sale of goods or services for any personal, family or household use; (x) letter of credit or independent guarantee; (xi) a bilateral contract entered with the supplier the terms of which mandates the contract to be governed by the law of a country other than India; or (xii) any other transaction(s) that may be specified by the Authority.
General Guidelines on risk management for undertaking factoring transactions The assignee undertaking factoring business shall ensure proper and adequate control and reporting mechanisms including but not limited to: (i) Assignee shall carry out a thorough credit appraisal of the debtors before entering into any factoring arrangement or prior to establishing lines of credit with the factor. (ii) Factoring services shall be extended in respect of receivables which represent genuine trade transactions which are not void in nature and are not pertaining to any trade in dispute. (iii) Assignee must be fully aware of the risks involved in factoring transactions such as sovereign risk, country risk, currency risk, transfer risk and documentation risk and credit risk. (iv) Every Factor and/or ITFS on behalf of the Factor, as the case may be, shall register the particulars of every transaction of assignment of receivables in its favour with the Central Registry set-up under section 20 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002), within the prescribed timelines from the date of such assignment, wherever applicable. (v) Assignee may purchase credit insurance for its exposure from insurers in the IFSC or shall comply with provisions of Sec 2CB of the Insurance Act, 1938 for purchase of such insurance. B. Guidelines on Forfaiting of Receivables
The following shall be adhered to while undertaking Forfaiting business by a Forfaiter: (i) Receivable shall be a negotiable instrument. (ii) Non-recourse to the Seller/Assignor. (iii) Notice should be given to debtor whenever there is rediscounting of bill, by Forfaiter. (iv) Payment by the importer/debtor must be guaranteed by a third party. (v) Adequate safeguards of Information Technology should be placed and Information Technology audit must be done regularly by all the entities as per clause 3 above, undertaking forfaiting activity must ensure that its contractual documents should specify the legal jurisdiction where the case will be resolved in the case of any dispute. (vi) All the entities as per clause 3 above, must ascertain the accuracy of information provided by the exporter so as not to prejudice any rights, if there is a breach of warranties. (vii) All Entities in IFSC undertaking forfaiting transactions shall adhere to International Chamber of Commerce Uniform Rules for Forfaiting (URF 800) (viii) All the entities as per clause 3 above, while undertaking forfaiting transactions shall adopt appropriate risk management policies as indicated in clause 19 above.
Powers of Authority to give directions and to collect information from factor/forfeiter 21.1 The Authority may, at any time, by general or special order, direct that every factor/forfaiter shall furnish to it, in such form, at such intervals and within such time, such statements, information or particulars relating to factoring/forfaiting business undertaken by them, as may be specified by the Authority from time to time. 21.2 The Authority may, if it considers necessary in the interest of business enterprises availing factoring/ forfaiting services or in the interest of factor/forfaiter or interest of other stake holders give directions to a factor/forfaiter either generally or in particular or group of factors/forfaiters in respect of any matters relating to or connected with the factoring/forfaiting business undertaken by them. 21.3 If any factor/forfaiter fails to comply with any direction given by the Authority under sub-clause (21.2), the Authority may prohibit such factor/forfaiter from undertaking the factoring/forfaiting business, Provided that before prohibiting any factor/forfaiter from undertaking the factoring/forfaiting business, the factor/forfaiter shall be given a reasonable opportunity to file its written submissions.
All the entities as per clause 3 above, shall ensure compliance with these factoring and forfaiting Guidelines in addition to other applicable laws.
PART II Prudential Guidelines
In addition to the above Guidelines, the Finance Company /Finance Unit undertaking factoring and/or forfaiting transactions shall adhere to the provisions of IFSCA (Finance Company) Regulations, 2021 and the Guidelines/ Circulars issued thereunder.
Recognition of Non-Performing Assets (NPA) 24.1 The receivable acquired under factoring which is not paid by the due date, should be treated as NPA irrespective of when the receivable was acquired by the factor or whether the factoring was carried out on “recourse basis” or “non-recourse” basis. The entity on which the exposure was booked should be shown as NPA and provisioning be made accordingly. 24.2 For the Purpose of asset classification and provisioning, the Circular bearing F.No 172/ IFSCA/Finance Company/Unit Regulations/2021-22/3’ dated May 03, 2021, on ‘Prudential Regulations and activity specific Guidelines’ issued by IFSCA, shall be adhered to.
Since under “without recourse” factoring transactions, the Finance Company/ Finance Unit is underwriting the credit risk on the debtor, there should be a clearly laid down Board-approved limit for all such underwriting commitments.
The Finance Company/ Finance Unit shall have a Board approved risk mitigation strategy or policy for identified risks while undertaking factoring and forfaiting business.
The factoring and forfaiting transactions shall be covered with the overall exposure ceiling as per the Authority’s circular bearing ‘F. No 172/ IFSCA/Finance Company/Unit Regulations/2021-22/6’ dated, May 25, 2021 on ‘Framework on Computation of Exposure Ceiling for Finance Companies/Finance Units’, as applicable. The exposure shall be reckoned as under: (i) In case of factoring on “with-recourse” basis, the exposure would be reckoned on the assignor. (ii) In case of factoring on “without-recourse” basis, the exposure would be reckoned on the debtor, irrespective of the credit risk cover/ protection provided, except in cases of international factoring where the entire credit risk is assumed by import factor.
IFSCA regulations are important from a professional point of view. Every day we see some new circulars and guidelines being released. Its high time that ICSI should do a training program or a crash course in IFSCA laws, statues, guidelines, circulars and regulations.
IFSCA has laid down guidelines on corporate government which needs to be followed by every Finance Company set up in the IFSC GIFT CITY, Ahmedabad. The gist of the guidelines are given below:
Part I Generic Guidelines
Corporate governance framework and disclosure 4.1 Every Finance Company registered with the Authority shall develop and implement a Board approved framework on Corporate Governance and Disclosure Requirements as relevant to its business operations which may be guided by the Guidelines specified in Part II of this Circular. 4.2 Every Finance Company shall publish the framework on Corporate Governance and Disclosure Requirements as per the disclosures mandated under the Companies Act, 2013, on its website, wherever available and/or in their Annual Report.
Fit and Proper Criteria 5.1 The Finance Company shall establish effective systems and controls to ensure that all the members of its Board meet the ‘fit and proper’ criteria and are eligible to be a member of its Board. A Finance Company must carry out due diligence of its Board members, both at the time of their appointment and at reasonably regular frequency during their term on the Board. The Finance Company shall, inter-alia, ensure: (i) To undertake a process of due diligence to determine the suitability of the person for appointment / continuing to hold appointment as a director on the Board, based upon qualification, expertise, track record, integrity and other ‘fit and proper’ criteria as specified by the Authority from time to time. It shall obtain necessary information and declaration from the proposed / existing director (s) for this purpose as per the format given in the Information on Management , on an annual basis. (ii) To have a Board approved mechanism to scrutinize the results of the due diligence process, information and declarations given by the proposed/existing director (s) and accordingly decide on their on-boarding. (iii) To obtain a declaration on an annual basis, from each and every member of its Board giving details of the material changes, if any, in the information provided earlier. Declaration shall also be required in case there is no material change in the information provided earlier. The declaration as obtained by the Finance Company, shall be certified by the auditor of the Finance Company for onward submission to the Authority not later than 30 days from the end of the financial year.
Part II Detailed Guidelines
Board of Directors (i) The Board of Directors of a Finance Company shall be of an appropriate size based on the scope and nature of operations of its business. (ii) The Board of Directors shall possess core competencies such as accounting, finance, law, business or management experience, industry knowledge, strategic planning experience and customer based experience or knowledge. (iii) There shall be director’s training on a regular basis to ensure that the members of the Board are kept up to date on the relevant field. (iv) The Finance Company shall obtain a duly signed deed of covenants (which shall deal with, but not be limited to the points mentioned below) whereby: (a) Every director shall: acknowledge that his/her appointment as the director on the Board is subject to the applicable laws, rules, regulations and Articles of Association and that he/she shall act only within the powers as laid down by the same. undertake to exercise the powers vested in him/her in good faith and in the interest of the Finance Company. disclose by general notice to the Board, his/her directorships, memberships or any interest in any form, in other corporate bodies. acquire proper understanding of the business of the Finance Company and perform his/her duties with proper care, diligence and skills, based on his/her knowledge and experience. exercise independent judgement in discharging his/ her duties and not seek to influence any decision of the Board for any consideration other than the interest of the Finance Company, shall express his/her views and opinions at the Board meetings without any fear or favor, shall not evade responsibility in any form and shall not make improper use of information disclosed to him/her. assist the Board in exercising adequate oversight on the business and operations of the Finance Company, particularly for ensuring compliance with all applicable laws, rules and regulations.
shall also commit to inform the Authority, on becoming aware of a real or potential breach of any applicable laws, rules or regulations by the Finance Company. (b) The deed of covenant shall include that the Finance Company has apprised the directors about the relevant control systems and procedures, voting rights at Board meetings, remuneration policy, insider dealing restrictions, appointment of senior executives and their authority, deliberations of the Committees of the Board and all other information which is reasonably required for them to carry out their functions and duties, effectively.
Compliance Officer The Finance Company shall appoint a Compliance Officer who shall be a member of the senior management with direct reporting to the Board. The Compliance Officer shall be responsible for implementing/operationalizing the policies and procedures approved by the Board and shall monitor adherence to all applicable laws, rules and regulations including these Guidelines as well as all internal policies and procedures.
Committees of the Board Depending on the nature, scale and complexity of its business operations, the Board may constitute committees which may include audit committee, nomination and remuneration committee, risk management committee, stakeholder relationship committee or any other committee as may be mandated under the Companies Act, 2013, and by the Authority from time to time.
Related Party Transactions The Finance Company shall formulate a Board approved policy which addresses all aspects of related party transactions. The same shall be reviewed by the Board of the Finance Company from time to time.
Disclosure and Transparency Besides ensuring disclosures under the Companies Act, 2013 and these Guidelines, the Finance Company shall ensure that the information provided to stakeholders, as the case may be, is timely, accurate, relevant and is not misleading. 10.1 Information to be placed before Board of Directors The Finance Company shall ensure to place before the Board at least the following information: (i) Annual operating plans and budgets, capital budgets and related updates. (ii) Quarterly results of the Finance Company.
(iii) Minutes of meetings of the Board constituted Committees. (iv) A statement on the change of directors, if any, and a declaration confirming the compliance with the ‘fit and proper’ criteria about them. (v) Any materially adverse event which could affect the Finance Company, its property or operations. (vi) Transactions that involve substantial payment towards goodwill, brand equity, or intellectual property and about any other transaction which is carried out beyond the normal course of business of the Finance Company. (vii) Conformity with Corporate Governance and Disclosure Requirements framework. (viii) All material breaches of internal policies, norms, risk limits and any other important information of the like nature. 10.2 Disclosures to be made on the website of the Finance Company The Finance Company shall disseminate the requisite information on its website, wherever available and/or in their Annual Report, which shall include the following: (i) Basic information about the Finance Company and about its group; (ii) The Annual Report of the Finance Company; (iii) Corporate Governance report in conformity with the provisions of the Companies Act, 2013 and these Guidelines; and (iv) Other significant information, if any; 10.3 Disclosures to be made in the Annual Financial Statements (AFS) In addition to the disclosure required under the Companies Act, 2013, a Finance Company shall also include the following in its Annual Financial Statement: (i) Components of owned funds and other related information; (ii) Details on the off-balance sheet exposures, if any; (iii) Its Asset Liability profile; (iv) Extent of financing by parent company; (v) Business ratios including Return on Equity (RoE) and Return on Assets (RoA); (vi) Concentration of Non-Performing Assets (NPAs) including total exposure to top five NPAs; (vii) Disclosures on provisioning in the Balance Sheet; (viii) Details on the registration/license/ authorization, by whatever name called, obtained from any financial sector regulators;
(ix) Penalties or fine imposed by any statutory authority/ financial sector regulators including strictures or directions on the basis of inspection reports or other adverse findings against it.
NOTE: I am surprised to find no role for company secretaries in this corporate governance guidelines to the Finance Company situated in IFSC. The Compliance officer should have been a Company Secretary and the certificate of auditor in respect of the Fit and Proper Criteria of the Board of Directors should ideally have been by a Practicing Company Secretary.
IFSCA has asked the banking units situated in the IFSC GIFT City to adopt International Financial Reporting Standards for its regulatory reporting & compliance. Read on.
Adopting a uniform set of accounting standards is one of the essential steps towards achieving uniformity and enhanced international comparability in financial reporting.
The International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) are accounting standards that are widely accepted and implemented in a large number of jurisdictions across the world. The IFRS system comprising of a comprehensive set of ‘high quality’ standards are aimed at improving the quality and transparency in the presentation of financial information. 3.It is advised that IBUs shall follow the IFRS accounting standards issued by the IASB, including any new amendments thereto, for preparing and maintaining its financial statements on standalone basis and for the purpose of reporting and compliance under the relevant IFSCA regulations, rules, directions, circulars and guidelines applicable for IBUs.
The financial year (accounting period) for the purpose of preparation of financial statements by the IBUs on standalone basis, under the IFRS, shall be taken as the period from April 1 to March 31. The IFSCA may permit an IBU to follow a different financial year (accounting period) based on the specific requests from such IBUs and merits of each case.
The implementation of IFRS is likely to impact the extant financial reporting systems and processes of IBUs, especially in the cases where their parent banks are not following the IFRS or IFRS-compliant accounting standards. Thus, the IBUs may require to carry out a detailed assessment of the likely impact and ensure a smooth transition to the IFRS, as applicable.
The IBUs whose parent banks are following the IFRS, may continue to prepare and maintain their standalone financial statements also as per the IFRS, for the purposes of reporting and other compliance with the IFSCA regulations, rules, directions, circulars, guidelines. Such IBUs may prepare their standalone financial statements from the beginning of the quarter / half-year starting from October 1, 2021, if not being done from the previous periods.
The IBUs whose parent banks are following accounting standards other than the IFRS, shall prepare and maintain their standalone financial statements and comply with the reporting and other requirements under IFSCA regulations, rules, directions, circulars, guidelines, as per the IFRS, beginning from the financial year (accounting period) starting from April 1, 2022.
The IFSCA may permit an IBU to follow a system of accounting standards, other than the IFRS, that is applicable for its parent bank, based on the specific requests from such IBUs. The IFSCA shall consider such requests based on the merits of each case, including the aspect related to the degree and quality of convergence of such accounting standards vis-àvis the IFRS.
IFSCA circular dated 27th July, 2021 laying down fee structure for setting up a Depository Participant in the IFSC GIFT City.
The depository participants have been permitted to operate in GIFT-IFSC in terms of the applicable provisions under SEBI (International Financial Services Centres) Guidelines, 2015, as amended from time to time.
The fee structure for Depository Participants in GIFT-IFSC shall be as follows: i. Application fee of USD 500 at the time of application for registration; ii. Registration fee of USD 2,500; iii. Fee of USD 2,500 every five years post registration.
The fees shall be remitted to the following account of IFSCA: Account Name: International Financial Services Centres Authority Account Number: 970105000174 Type of Account: USD Current Account SWIFT Code: ICICINBBIBU NOSTRO Details: BOFAUS3N, Bank of America, N.A., New York Branch, A/c no: 6550491848
The IFSCA has issued guidelines for issue of certificates of deposits by Banking Units situated inside the IFSC. Salient features are as follows:
Certificate of Deposit (CD) is a negotiable instrument and issued in dematerialised form or as a Usance Promissory Note against funds deposited at a BU for a specified time period.
IBUs may issue CDs denominated in any freely convertible foreign currency.
Minimum amount of a CD should be USD 2500 or equivalent in any freely convertible foreign currency.
BUs may issue CDs to persons resident in India and persons resident outside India. Issuance of CDs to persons resident in India shall be subject to the provisions of the Foreign Exchange Management Act, 1999.
The maturity period of CDs issued by BUs should not be less than 7 days and not more than one year, from the date of issue. There shall be no lock-in period for the CDs other than the minimum maturity period.
IBUs may issue CDs at a discount on face value or on the basis of fixed or floating coupon rate. In case of CDs issued on floating rate basis the methodology of compiling the floating rate should be objective, transparent and market based. The BU is free to determine such discount / coupon rate.
IBUs have to maintain appropriate reserve requirements, i.e., Retail Deposit Reserve Ratio (RDRR) on the issue price of the CDs issued to individuals.
CDs may be issued in physical form or in demat form.
CDs in physical form are freely transferable by endorsement and delivery. CDs in demat form can be transferred as per the procedure laid down by the depository. 10.IBUs shall clearly inform subscribers that the CDs issued by them are not covered by Deposit Insurance and also that the lender of Last resort (LOLR) facility is not available in IFSC. 11.IBUs shall not grant loans against CDs. 12.IBUs are permitted to buyback CDs before maturity. Buyback of CDs can be made only 7 days after the date of issue of the CD 13.Since CDs are transferable, the physical certificates may be presented for payment by the last holder. BUs shall take necessary precautions to verify the chain of transfers and make payment only by credit to the account of the presenter held with them or with another BU or with the branch of a bank outside IFSCA. In case of payment to an account held in another BU or with the branch of a bank outside IFSCA, the BU shall obtain complete details of the payee and such bank accounts and keep them on record. 14.IBUs shall provide any information/ data or statement that may be called for by the Authority.