The Union finance ministry
is finalising norms for a unified regulator for the International Financial Services Centre (IFSC) situated at GIFT City
in Gandhinagar, Gujarat, which has clocked $7 billion of business in banking, insurance, and capital markets
The finance ministry
has taken the RBI’s proposal for a unified regulator seriously because of the high potential of the IFSC.
The central bank had also said some of the successful Asian IFSCs such as Hong Kong, Dubai, and Singapore had one regulator for all decision-making, which should be the model applied in India. The proposed name for the regulator is the GIFT Financial Sector Regulatory Authority.
The task force consists of senior officials from different ministries.
The move follows concerns that domestic regulators would consider the domestic implications of the IFSC
rules, which ideally should not be the case because the IFSC
operated like a foreign country in Indian territory.
Sources said the finance ministry
had approved the proposal for allowing FPIs
However, the decision-making would have been quicker had there been an independent unified regulator at Gift IFSC.
could face similar challenges as well.
Nishith Desai, founder, Nishith Desai Associates, a global legal advisory firm, said, “There is a need to have a unified regulator for making the GIFT IFSC
successful. It should be free to prepare regulations that can create an ecosystem suitable for global investors.” Desai also said such a regulator should have a global mindset and be able to understand business for quick regulation and faster implementations of proposals.
According to the Global Financial Centres Index (GFCI) developed by two leading think tanks, the Z/Yen Group in London and the China
Development Institute in Shenzhen, India’s Gift IFSC
figures 10th among international financial centres that have huge potential to grow. Shanghai and Singapore are among the top three, but GIFT IFSC
is above New York, Seoul and Luxembourg.
The proposal’s actual implementation may take time as it may have to cross some layers and legal amendments are needed. However, if implemented, business could multiply manifold in a short span of time.
has also recommended that if decisions on a unified regulator and a full-fledged arbitration centre are delayed, GIFT IFSC
will remain a real estate project.
“A unified regulator should also be empowered to take all decisions without any pre-determined parameters, including tax-related issues, with a single-minded focus to attract high-quality players. Its decisions shall follow an open and transparent system and approvals can be non-precedential. There is a need to attract a few showcase investors in each area,” Desai said.
Another proposal of the RBI
that is being discussed by the task force is to make the arbitration centre function like a full-fledged one. GIFT IFSC
has an agreement with the Singapore International Arbitration Centre (SIAC) and at present only case hearing is conducted locally while case management and passing of awards takes place in Singapore. There are some legal issues which can be addressed if awards are also passed in GIFT IFSC
and made enforceable in India under the Indian arbitration law
and can also be applicable to overseas investors in GIFT IFSC, which would be similar to the awards issued by SIAC.
can be the ideal venue for conduct of arbitration. There is a need for clarity from the government on how awards passed in GIFT IFSC
can be enforced in India and/or in foreign countries in view of the New York Convention,” Desai said.