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The Lok Sabha on Wednesday passed a Bill for setting up of an authority to develop and regulate the financial services market at the International Financial Services Centres (IFSCs) in India amid various objections raised by the opposition.
While moving the International Financial Services Centres Authority Bill, 2019, Finance Minister Nirmala Sitharaman said it would allow formation of the International Financial Services Centres Authority (IFSCA) and apply to all IFSCs set up under the Special Economic Zones Act, 2005.
The Bill, introduced in the Lok Sabha on November 25, was earlier withdrawn from the Rajya Sabha because being a Finance Bill it was meant to be tabled only in the Lok Sabha. It had received the Cabinet clearance in February.
The IFSCA members will include the Chairperson, one member each to be nominated by the Reserve Bank of India (RBI), the Securities and Exchange Board of India (SEBI), the Insurance Regulatory and Development Authority of India (IRDAI), and the Pension Fund Regulatory and Development Authority (PFRDA); two from among officials of the Ministry of Finance, and two to be appointed on the recommendation of a Search Committee.
Members will have three-year term, subject to reappointment.
The IFSCA will regulate financial products (such as securities, deposits or contracts of insurance), financial services, and financial institutions which have been approved by any appropriate regulator (such as the RBI or the SEBI), in an IFSC.
It will follow all processes that are applicable to such financial products, financial services and financial institutions under their respective laws. The appropriate regulators are listed in a Schedule to the Bill, and include the RBI, the SEBI, the IRDAI and the PFRDA.
The central government could amend this schedule through a notification.
The IFSCA's other functions will include regulating any other financial products, financial services, or financial institutions in an IFSC, which may be notified by the central government; and recommending any other financial products, financial services, or financial institutions to the central government, which may be permitted in an IFSC.
As per the bill an IFSCs Authority Fund will be set up and the items credited to the fund will include all grants, fees and charges received by the IFSCA, and all sums received from various sources, as decided by the central government.
The Fund will be used for salaries, allowances and other remuneration of members and employees, and expenses incurred by the IFSCA.
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.
Replying to a query of NCP's Supriya Sule, the Minister said there were provisions in the Bill to allow setting up of more IFSCs and that one such was already established in the GIFT (Gujarat International Finance Tec-City) city of Ahmedabad.
"We are bringing several of these regulators together as one unit to the limited extent of having to deal with various institutions that are present in the IFC (International Financial Corporation). Together with it, we are also defining the actual businesses that are being recognised there."
"We are defining various financial products and also IT-enabled services in the financial sector."
Stating that the government wanted unified authorities to deal with a particular specialised financial services hub, the Minister said, "We want to have something similar to London and Singapore in terms of international financial hub."
It would allow Indian firms to access the international market and deal with the internal market through this centre, she added.
Explaining the background, the Minister said the Ministry of Finance had set up a committee, headed by Percy Mistry, in 2008 that examined the issue of financial services.
Even at that time it was felt that by 2015 up to $50 billion would be spent on international financial services by Indian firms and that amount would obviously be going out of the country because of lack of our own international financial services centre, Sitharaman said.
Therefore, the necessity of a financial services centre in India was recognised and in 2011 Section 18 in the SEZ Act was brought in.
By 2015, it was made operational and regulators, like the RBI and the SEBI, which dealt with various financial institutions, started issuing notifications to regulate institutions that had started functioning in the GIFT city, referred to as International Financial Services Centre, of Ahmedabad, she said.
The BSE set up the India International Exchange (INX) and the National Stock Exchange, IFSC, there and the daily volume had crossed $4 billion, the Minister said.
Around 13 international banking institutions were functioning from there, she said. Banking transaction alone had crossed $24 billion, she said and added, there were 40 more operational brokers, 19 players in the insurance business and more than 30 IT and IT-enabled services units there.
"All of these are bringing certain advantages to India and Indian companies because now they don't need to go elsewhere to deal with international markets and also to participate in international financial functions," the Minister said.