Executive Summary:
This notification, titled the Foreign Exchange Management International Financial Services Centre Regulations, 2015, outlines regulations for financial institutions established in International Financial Services Centres (IFSCs). It defines key terms, specifies the treatment of IFSC financial institutions as persons resident outside India, and governs their business operations in foreign currency and Indian Rupees. The regulations are effective from the date of publication in the Official Gazette and include amendments up to January 7, 2020.
Key Points / Main Content:
Definitions:
* 'Act' refers to the Foreign Exchange Management Act, 1999.
* 'Financial Institution' includes companies, firms, associations of persons, and other juridical persons engaged in rendering financial services or carrying out financial transactions.
* 'Financial Service' means activities a financial institution is allowed to carry out as specified in the respective Act of the Parliament or by the Government of India or by any Regulatory Authority.
* 'Financial Transaction' includes making or receiving payments, issuing financial instruments, transferring securities, or acknowledging debt.
* 'FMC' means the Forward Market Commission.
* 'IFSC' has the meaning defined in the Special Economic Zones Act, 2005.
* 'IRDA' means the Insurance Regulatory and Development Authority.
* 'PFRDA' means the Pension Fund Regulatory and Development Authority.
* 'Regulatory Authority' includes RBI, SEBI, IRDA, PFRDA, FMC, or any other statutory authority.
* 'SEBI' means the Securities and Exchange Board of India.
Regulations:
* Financial institutions or their branches set up in IFSCs are treated as persons resident outside India.
* Financial institutions or their branches can conduct business in foreign currency with residents or non-residents, as determined by the concerned Regulatory Authority.
* The Reserve Bank of India (RBI) may allow these institutions to conduct business in Indian Rupees with residents or non-residents, through general or specific permission.
* Other regulations do not apply to financial institutions or branches in an IFSC, unless otherwise specified in these regulations or directed by the RBI.
Impact Analysis:
Financial Institutions in IFSCs:
* Impact: Governed by these specific regulations, treated as persons resident outside India, and can conduct business in foreign currency and potentially Indian Rupees.
* Action Required: Comply with these regulations, conduct business as permitted by the concerned Regulatory Authority and adhere to any RBI permissions for INR transactions.
Regulatory Authorities (RBI, SEBI, IRDA, PFRDA, FMC):
* Impact: Responsible for regulating financial institutions within their respective jurisdictions in IFSCs.
* Action Required: Oversee and enforce compliance with these regulations and any other applicable laws.
Key Entities Referenced
Foreign Exchange Management Act, 1999: An act of the Parliament of India that provides a legal framework for the management of foreign exchange in India.
International Financial Services Centre: A jurisdiction that provides financial services to non-residents and residents, in foreign currency. Defined in Section 2(q) of the Special Economic Zones Act, 2005.
Reserve Bank of India: The central bank of India, responsible for regulating the financial system and foreign exchange management.
Foreign Exchange Management International Financial Services Centre Regulations, 2015: Regulations issued by the Reserve Bank of India pertaining to financial institutions set up in International Financial Services Centres.
Securities and Exchange Board of India: A regulatory authority in India that regulates the securities market.
Insurance Regulatory and Development Authority: A regulatory body in India that regulates and develops the insurance industry.
Pension Fund Regulatory and Development Authority: The regulatory body in India that regulates and promotes the pension sector.
Forward Market Commission: An agency of the Government of India responsible for overseeing commodity futures markets. Now merged with SEBI.
RESERVE BANK OF INDIA
(Foreign Exchange Department)
NOTIFICATION
Mumbai, the 2nd March, 2015
(Includes amendments up to 7th January 2020)
Foreign Exchange Management (International Financial Services Centre)
Regulations, 2015
No. FEMA.339/2015-RB – In exercise of the powers conferred by section 47 of the
Foreign Exchange Management Act, 1999 (42 of 1999), the Reserve Bank makes
the following regulations relating to financial institutions set up in International
Financial Services Centres, namely:
1. Short title and commencement
i) These regulations may be called the Foreign Exchange Management
(International Financial Services Centre) Regulations, 2015.
ii) They shall come into force from the date of their publication in the Official
Gazette.
2. Definitions
In these Regulations unless the context requires otherwise:
a) 'Act' shall mean the Foreign Exchange Management Act, 1999 (42 of 1999);
b) 'Financial Institution' shall include
i) a company, or
ii) a firm, or
iii) an association of persons or a body of individuals, whether
incorporated or not, or
iv) any artificial juridical person, not falling within any of the preceding
categories engaged in rendering financial services or carrying out financial
transactions.
Explanation: For the purpose of this sub-regulation, and without any loss
of generality of the above, the expression 'financial institution' shall include
banks, non-banking financial companies, insurance companies, brokeragefirms, merchant banks, investment banks, pension funds, mutual funds,
trusts, exchanges, clearing houses, and any other entity that may be
specified by the Government of India or a Financial Regulatory Authority.
c) 'Financial service' shall mean activities a financial institution is allowed to carry
out as specified in the respective Act of the Parliament or by the Government of
India or by any Regulatory Authority empowered to regulate the concerned
financial institution.
d) 'Financial transaction' shall mean making any payment to, or for the credit of
any person, or receiving any payment for, by order or on behalf of any person, or
drawing, issuing or negotiating any bill of exchange or promissory note, or
transferring any security or acknowledging any debt.
e) 'FMC' shall mean the Forward Market Commission established under the
Forward Contracts (Regulation) Act, 1952 (74 of 1952).
f) 'International Financial Services Centre' or 'IFSC' shall have the same meaning
given in Section 2 (q) of the Special Economic Zones Act, 2005 (28 of 2005).
g) 'IRDA' shall mean the Insurance Regulatory and Development Authority
established under the Insurance Regulatory and Development Authority Act, 1999
(41 of 1999).
h) 'PFRDA' shall mean the Pension Fund Regulatory and Development Authority
established under the Pension Fund Regulatory and Development Authority Act,
2013 (23 of 2013).
i) 'Regulatory Authority' shall include Reserve Bank of India (RBI), Securities
Exchange Board of India (SEBI), Insurance Regulatory Development Authority
(IRDA), Pension Fund Regulatory and Development Authority (PFRDA), Forward
Market Commission (FMC) or any other statutory authority empowered to regulate
a financial institution under the Indian laws.
j) 'SEBI' shall mean the Securities and Exchange Board of India established under
the Securities and Exchange Board of India Act, 1992 (15 of 1992).
k) The words and expressions used but not specified in these Regulations shall
have the same meanings respectively assigned to them in the Act.3. Any financial institution or branch of a financial institution set up in the IFSC and
permitted/recognised as such by the Government of India or a Regulatory Authority
shall be treated as a person resident outside India.
4. A financial institution or branch of a financial institution shall conduct such
business in such foreign currency and with such persons, whether resident or
otherwise, as the concerned Regulatory Authority may determine.
1Provided that, Reserve Bank may, through a general or specific permission, allow
such financial institution or its branch to conduct such business in Indian Rupee
with such persons, whether resident or otherwise as it may determine.
5. Subject to the provisions of Section 1(3) of the Act, and save as otherwise
provided in these Regulations or any other Regulations or directed by the Reserve
Bank of India from time to time, nothing contained in any other regulations shall
apply to a financial institution or branch of a financial institution set up in an IFSC.
B. P. KANUNGO, Principal Chief General Manager
Footnotes:
i) The principal Regulations [Notification no. FEMA 339/2015-RB dated March 02, 2015] were
published in the Gazette of India [Extraordinary, Part II–Section 3–Sub-Section (i)] vide
G.S.R.218(E) dated 23.03.2015 and subsequently amended vide:
1. Notification no. FEMA 397/RB-2020 [Foreign Exchange Management (International
Financial Services Centre) (Amendment) Regulations, 2020] dated January 07, 2020
published in the Gazette of India [Extraordinary, Part III–Section 4] vide Gazette ID CG-
DL-E-17012020-215530 dated 16.01.2020.
Endnotes:
1Inserted w.e.f. 16.01.2020 vide notification no. FEMA 397/2020-RB dated January 07, 2020.