Introduction
International Financial Services Centres (“IFSC(s)”) have emerged as a crucial hub for financial activities, offering a unique blend of regulatory and tax incentives to attract international businesses and investments. The International Financial Services Centres Authority (“IFSCA”), the regulatory body responsible for governing an IFSC, has been instrumental in implementing and modifying various regulations to promote the growth and stability of the financial sector. Through this article, we recapitulate a comprehensive overview of the significant regulatory changes and reforms that have impacted IFSCs during 2024.
Regulatory Reforms
1) IFSCA (Payment Services) Regulations, 2024[1]
The IFSCA (Payment Services) Regulations, 2024 (as amended) (“PS Regulations”) were introduced on 29th January 2024, for regulating and supervising payment services in or from an IFSC.
Key updates in relation to the PS Regulations include:
(a) Categorisation: Payment service providers (“PSP(s)”) are categorised into ‘regular payment service provider’ and ‘significant payment service provider’. Regular PSPs may be designated as significant PSPs upon meeting the threshold limit for business volume and additional conditions outlined in the PS Regulations.
(b) Payment Services:
(i) PSPs can offer 5 (five) types of ‘payment services’ which are: (A) account insurance (including e-money account issuance service); (B) e-money issuance; (C) merchant acquisition service; (D) escrow service; and (E) cross-border money transfer service.
(ii) Certain activities shall not be considered as ‘payment services’ which, inter alia entails: (A) securities assets transaction services; (B) any transaction concluded via instruments including a cheque, cashier’s order, dividend warrant, or demand draft; and (C) transaction between a subsidiary and holding company or vice versa, without any involvement of a PSP except the group entities.
(c) Authorisation requirements: The PS Regulations specify the authorisation requirements for PSPs, including (A) minimum net-worth thresholds (on an ongoing basis) as specified in Schedule V of the PS Regulations; (B) fit and proper requirements specified in Schedule II of the PS Regulations; (C) a robust risk-based framework for risks which are borne by the PSP as well as risks emanating from any third-party service relationships while providing payment services; (D) formulate safety protocols to protect applicable funds as specified in Schedule IV of the PS Regulations; (E) other compliance and reporting requirements; and (F) grievance redressal procedures.
(d) Subsequently, the IFSCA issued a circular on 6th February 2024[2], detailing the authorisation process for PSPs, followed by FAQs on 28th February 2024[3].
2) IFSCA (Payment and Settlement Systems) Regulations, 2024[4]
The IFSCA notified the IFSCA (Payment and Settlement Systems) Regulations, 2024 (“PSS Regulations”) on 14th October 2024 which superseded the application of the Payment and Settlement Systems Regulations, 2008 in IFSCs. The PSS Regulations were implemented, inter alia to govern the authorisation and operations of payment and settlement systems in IFSCs, procuring in-principle approval, and the issuance of authorisation certificates.
Key points in relation to the PSS Regulations includes:
(a) Applications: Applications to set up a payment system by any applicant must be accompanied by a non-refundable USD 1000 (United States Dollars One Thousand only) fee to the IFSCA[5]. The IFSCA may thereafter grant in-principle approval to such applicant and the issue of an authorisation certificate from the IFSCA shall be subject to compliance with sub-section (1) of Section 7 of the Payment and Settlement Systems Act, 2007 (as amended) (“PSS Act”)[6] and conditions as may be stipulated by the IFSCA under the PSS Regulations[7].
(b) Exemptions: An applicant may apply for an exemption under Section 4(d) of the PSS Act providing a rationale for the request. The IFSCA shall review the application and either approve it with or without conditions, or reject it, notifying such applicant within 90 (ninety) days[8].
(c) Operations: A system provider must comply with the “principles for financial market infrastructure” laid out by the Committee on Payments and Market Infrastructures and International Organisation of Securities Commissions[9].
3) IFSCA (Registration of Factors and Registration of Assignment of Receivables) Regulations, 2024[10]
The IFSCA (Registration of Factors and Registration of Assignment of Receivables) Regulations, 2024 (“RFR Regulations”) aims to regulate the: (A) registration of factors; and (B) filing of the particulars of transactions with the Central Registry (as defined under The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002[11] (as amended)) by a Trade Receivable Discounting System (“TReDS”) on behalf of a factor in line with the Factoring Regulation Act, 2011[12] (as amended) (“Factoring Regulation Act”).
Key highlights of the RFR Regulations include:
(a) Registration of factors: Factors not exempted under Section 5 of the Factoring Regulation Act are required to make an application to the IFSCA for grant of a certificate of registration. Upon the fulfilment of the conditions set in Regulation 4(iii) of the RFR Regulations, the IFSCA shall issue the certificate of registration.
(b) Registration of assignment of Receivables: Trade receivables financed through a TReDS must be filed with the Central Registry by the concerned TReDS on behalf of the factor within 10 (ten) days of assignment or satisfaction. This includes the assignment of receivables to the factor upon satisfaction of the assignment upon full realisation.
Circulars, notifications, and directions pertaining to IFSC
1) Amendments made to the IFSCA Banking Handbook
The IFSCA introduced amendments to the IFSCA Banking Handbook on 5th April 2024, releasing General Directions - V 5.0 (“GEN Directions 5.0”), Conduct of Business Directions - V 6.0 (“COB Directions 6.0”), and Prudential Directions - V 5.0 (“PRU Directions 5.0”).
Key updates of the IFSCA Banking Handbook include:
(a) GEN Directions 5.0:[13]
Under module no. 1 (Licensing of Banking Units), Section 3.i.b(iv) has been amended to include specific prudential requirements. The specific prudential requirements include capital to risk weighted asset ratio (“CRAR”), liquidity coverage ratio (“LCR”), net stable funding ratio (“NSFR”) and leverage ratio(s).
(b) COB Directions 6.0:[14]
(i) Under module no. 2 (Undertaking Business in Foreign Currency), Section 6.a.ii now requires an IFSC Banking Unit (“IBU”) to follow Reserve Bank of India (“RBI”) directives when opening a Special Non-Resident Rupee Account.
(ii) Under module no. 12 (Representative Office (REPO)), Section 3.iii and under module no. 17 (Global administrative Offices), Section 4.vii have been amended to replace the previous Financial Action Task Force (“FATF”) compliance requirement with a mandate for a proven track record in anti-money laundering / combating the financing of terrorism compliance in the applicant's home jurisdiction.
(iii) Under module no. 11 (Accepting Deposit (ACDE)), the definition of ‘current account’ has now been amended to include demand deposits that “may or may not pay interest”, replacing the previous definition that limited current accounts to non-interest-bearing deposits[15].
(c) PRU Directions 5.0:[16]
Section 1.v.(a) of the module no. 3 (Prudential Reporting, Disclosure and Supervision) has been amended, specifying prudential requirements (CRAR, LCR, NSFR, leverage ratio(s)) for a banking company. IBUs are now required to report any breaches of these requirements.
2) Additional requirements for carrying out the permissible activities by a finance company as a lessor under the ‘Framework for Ship Leasing’[17]
The IFSCA, vide a circular dated 8th May 2024, has introduced new requirements for finance companies acting as lessors under the Framework for Ship Leasing (“SL Framework”).
(a) The SL Framework specifies conditions for transactions involving the transfer of ownership or leasehold rights of ships or vessels, when services are provided to a resident in India (“RI”).
(b) The IFSCA in its FAQs dated 23rd July 2024 later clarified that assets owned by Indian entities for shipping business with Indian clients cannot be transferred or leased by an IFSC entity to serve Indian clients within the same financial year.[18]
3) IBUs to offer internet banking services to customers[19]
In April 2024, the IFSC notified IBUs regarding internet banking services.
Key updates include:
(a) Powers: IBUs may offer internet banking in three forms: (i) information service; (ii) interactive information exchange; and (iii) transactional service.
(b) Duties: IBUs must implement a robust risk management framework, ensure compliance with know-your-customer requirements, follow technology standards, and adhere to legal requirements. They must also provide secure, user-centric platforms aligned with their parent bank’s information technology policies.
4) IBUs may participate in the synthetic securitisation program of their parent bank[20]
The IFSC, vide its circular dated 11th July 2024, has allowed IBUs to participate in their parent bank's synthetic securitisation program, subject to specified conditions provided therein. The circular defines “synthetic securitisation” as a structure where the credit risk of an underlying pool of exposures is transferred, fully or partially, through funded or unfunded credit derivatives or guarantees, while the exposure remains on the lender's balance sheet.
5) IFSCA allows remittances for all permissible purposes under Liberalised Remittance Scheme (“LRS”) to IFSCs[21]
An authorised person (“AP”) can now facilitate remittances for all permissible purposes under LRS to IFSCs for:
(a) Availing financial products or services as per the International Financial Services Centres Authority Act, 2019[22] (as amended) within IFSCs.
(b) Current or capital account transactions outside IFSCs, via foreign currency accounts held in IFSCs.
6) Introduction of Single Window IT System (“SWITS”) for Streamlined Approvals and Registrations in IFSC Unit Setup[23]
The IFSCA has developed the SWITS to streamline application procedures for setting-up units in IFSCs and special economic zones, simplifying and harmonising processes under various applicable acts.
(a) Applications and approvals consolidated under SWITS include: (i) No objection certificates from the RBI, Securities and Exchange Board of India, and Insurance Regulatory and Development Authority of India; (ii) Goods and Services Tax Number application; and (iii) Registration, licenses, and authorisations from the IFSCA.
(b) Exempted activities cannot be processed through SWITS and must follow the standard application procedures.
7) Amendment to the Framework for Aircraft Lease, 2022 (“AL Framework") regarding transactions with RIs[24]
(a) The amendment inserts Clause O.2 (Transactions with persons resident in India) in the AL Framework, which places a restriction on lessors on the purchase, lease or acquisition of assets covered under the AL Framework, where post the acquisition, such assets are solely used by RIs or for providing services to RIs.
(b) This restriction does not apply to (i) acquiring by lessors who are not group entities to the RIs; (ii) acquiring by lessors as a part of sale and leaseback arrangement of assets imported into India for the first time; or (iii) where such assets are being acquired from a manufacturer in India.
(c) The updated AL Framework was published vide circular dated 26th February 2025.[25]
8) Exemptions to certain entities or activities from the applicability of the IFSCA (Anti Money Laundering, Counter-Terrorist Financing, and Know Your Customer) Guidelines, 2022 (“KYC Guidelines)[26]
The IFSCA exempted certain entities including, among others, a financial institution exclusively providing services to entities within its finance group, who are not classified as “high-risk jurisdictions subject to call for action” by the FATF. If a third-party business or service provider is involved in such transactions, a business risk assessment must be conducted.
9) Introduction of the IFSCA (Informal Guidance) Scheme, 2024[27]
The IFSCA has introduced this scheme to assist those setting up units in IFSCs with navigating applicable acts, rules, and regulations. The scheme is intended for (i) authorised, licenced, and approved entities, and (ii) individuals planning to establish units in IFSCs. Applications for non-binding guidance can be made through the SWITS by paying a fees of USD 1000 (United States Dollars One Thousand only) for each application.
10) Directions for IBUs opening a Foreign Currency Account (“FCA”) of an RI under the LRS[28]
(a) IBUs have the following powers and duties under these directions:
(i) To open FCAs for RIs to receive remittances from onshore India via an AP under LRS, and offshore remittances.
(ii) To ensure that onshore remittances to the FCAs under the LRS must be through an AP. IBUs must obtain a copy of the return submitted by the RI to AP (as per the RBI) before opening the FCA and for any inward remittance thereafter.
(iii) To obtain a declaration from the RI confirming that remittances into the FCA from offshore are either funds remitted under LRS or income from such investment.
(iv) To ensure that foreign exchange in the FCA from onshore or other locations is repatriated to the RI's account in a designated authorised dealer category-I bank through an AP, unless reinvested within 180 (one hundred and eighty) days.
(v) To ensure that the RI does not settle any domestic transaction with another RI through the FCA.
(vi) To ensure compliance with the KYC Guidelines.
(b) IBUs may permit the use of remitted FCA funds for availing financial products and services, provided that the tenue of a fixed deposit shall be less that 180 (one hundred and eighty) days.
(c) IBUs are advised to enable the opening of FCAs by RIs and remittance of funds to these FCAs through digital banking platforms (internet and mobile banking) of the parent bank, ensuring a seamless experience for customers.
(d) For availing financial services in foreign jurisdictions outside IFSC, IBUs shall:
(i) Permit remitted FCA funds to be utilised for all permitted capital and current account transactions.
(ii) Ensure that remittances for permitted capital account transactions from FCA funds are not made to countries listed by the FATF as non-cooperative.
(iii) Ensure that remittances from the FCA are not made, directly or indirectly, to individuals or entities identified by the RBI as posing a terrorism risk.
11) Revised guidelines on setting-up and operation of International Trade Finance Service Platform, 2024 (“ITFS Guidelines”)[29]
(a) Application: The ITFG Guidelines replace the ‘Framework for the setting-up of International Trade Financing Services Platform (“ITFS”) for providing Trade Finance Services at IFSCs’ (“2021 Guidelines”) and apply to: (i) all registered ITFS under the 2021 Guidelines; (ii) entities seeking registration as an ITFS operator in an IFSC (“Applicant”); and (iii) participants in an ITFS.
(b) Qualification: The Applicant must be registered under the Companies Act, 2013[30] (as amended), with over 3 (three) years of experience in trading infrastructure or fintech, maintain a minimum owned fund of USD 0.2 million (United States Dollars Two Hundred Thousand only), and have the necessary technological infrastructure and business continuity plans.
(c) Registration: The IFSCA has the power to grant, refuse, and revoke registrations under these guidelines. The Applicant must commence business within 6 (six) months of grant of registration.
(d) Permissible activities: Include factoring, reverse factoring, bill discounting under letter of credit, supply chain financing, pre-shipment credit, forfaiting any other activity as permitted by the IFSCA.
Conclusion
The year 2024 has seen significant regulatory changes from the IFSCA, aimed at strengthening the operational framework within the IFSCs. Key updates across banking, the foreign exchange norms, and IBU regulations have been introduced to enhance transparency, facilitate ease of doing business, and ensure greater compliance with global standards.
Among the notable updates, the revisions to the guidelines for opening FCAs for RIs, the expansion on the AL Framework and SL Framework, and enhanced eligibility criteria for ITFS platforms have paved the way for more efficient transactions and investment opportunities. Additionally, new provisions have been introduced in respect of cross-border remittances, capital account transactions, and third-party service providers.
The focus on digital banking platforms, improving infrastructure, and compliance with international best practices such as the KYC Guidelines, signals a clear direction towards making IFSCs more competitive and globally integrated. As these changes take effect, businesses and financial entities within IFSCs must stay informed and adapt to maintain compliance and capitalise on emerging opportunities.
Authors:
Ankit Sinha
Partner, Juris Corp
Email: [email protected]
Sangha Shree Nath
Associate, Juris Corp
Email: [email protected]
Yashassvi Periwal
Associate, Juris Corp
Email: [email protected]
The authors have been assisted by Ms. Vaishnavi Panyam, an Assessment Trainee with the Firm, in the preparation of this article.
Disclaimer:
This article is intended for informational purposes only and does not constitute a legal opinion or advice. Readers are requested to seek formal legal advice prior to acting upon any of the information provided herein. This article is not intended to address the circumstances of any particular individual or corporate body. There can be no assurance that the judicial / quasi-judicial authorities may not take a position contrary to the views mentioned herein.
[1] IFSCA (Payment Services) Regulations, 2024, [Link at: https://ifsca.gov.in/Document/Legal/ps-regulations-final-consolidated-final23042024043055.pdf].
[2] Format and manner of seeking authorisation as Payment Service Provider, IFSCA, (06.02.2024), [Link at: International Financial Services Centres Authority].
[3] Frequently asked questions on IFSCA (Payment Services) Regulations 2024, IFSCA, (28.02.2024), [Link at: International Financial Services Centres Authority].
[4] IFSCA (Payment and Settlement Systems) Regulations 2024, IFSCA, (14.10.2024), [Link at: International Financial Services Centres Authority].
[5] Regulation 4 of the PSS Regulations.
[6] Payment and Settlement Systems Act 2007, [Link at: a2007-51.pdf].
[7] Regulation 5 of the PSS Regulations.
[8] Regulation 7 of the PSS Regulations.
[9] Regulation 7 of the PSS Regulations.
[10] IFSCA (Registration of Factors and Registration of Assignment of Receivables) Regulations 2024, IFSCA, (22.11.2024), [Link at: International Financial Services Centres Authority].
[11] Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002,
[Link at: https://www.indiacode.nic.in/bitstream/123456789/2006/1/A2002-54.pdf].
[12] Factoring Regulation Act, 2011, [Link at a2012-12.pdf].
[13] IFSCA Banking Handbook General Directions- V 5.0, [Link at: the-ifsca-banking-handbook-gen-directions-v5-005042024051405.pdf].
[14] IFSCA Banking Handbook Conduct of Business Directions- V 6.0, [Link at: the-ifsca-banking-handbook-cob-directions-v6-005042024051513.pdf].
[15] Interest on Current account - Amendment to ACDE Module (Module No.11) of COB Directions v 6.0 (IFSCA Banking Handbook), IFSCA, (14.06.2024), [Link at: International Financial Services Centres Authority].
[16] The IFSCA Banking Handbook PRU Directions V 5.0, [Link at: International Financial Services Centres Authority (ifsca.gov.in)].
[17] Additional requirements for carrying out the permissible activities by Finance Company as a Lessor under ‘Framework for Ship Leasing’, IFSCA, (08.05.2024), [Link at: International Financial Services Centres Authority (ifsca.gov.in)].
[18] FAQs on Circular titled “Additional requirements for carrying out the permissible activities by Finance Company as a Lessor under ‘Framework for Ship Leasing’, IFSCA, (23.07.2024), [Link at: International Financial Services Centres Authority].
[19] Internet banking services to clients of IBUs, IFSCA, (22.04.2024), [Link at: International Financial Services Centres Authority (ifsca.gov.in)].
[20] Permitting IBUs to participate in the synthetic securitisation program of Parent bank, IFSCA, (11.07.2004), [Link at: International Financial Services Centres Authority (ifsca.gov.in)].
[21] Remittances to International Financial Services Centres (IFSCs) under the Liberalised Remittance Scheme (LRS), IFSCA, (11.07.2024), [Link at: International Financial Services Centres Authority (ifsca.gov.in)].
[22] The International Financial Services Centres Authority Act, 2019, [Link at: International Financial Services Centres Authority].
[23] Page 9, IFSCA Bulletin, (July-September 2024), [Link at: ifsca-bulletin-jul-sep-202414112024055322.pdf].
[24] Amendment to the ‘Framework for Aircraft Lease’ with regard to transactions with person(s) resident in India, IFSCA, (amended up to 26.02.2025), [Link at: amendatory-circular-aircraft-lease-26-02-2025-final26022025114948.pdf].
[25] Framework of Aircraft Lease, IFSCA, (updated as on February 26, 2025), [Link at: International Financial Services Centres Authority].
[26] Exempting certain entities/activities from the applicability of IFSCA (AML, CTF and KYC) Guidelines 2022, IFSCA, (18.11.2024), [Link at: International Financial Services Centres Authority].
[27] International Financial Services Centres Authority (Informal Guidance) Scheme 2024, IFSCA, (02.12.2024), [Link at: International Financial Services Centres Authority].
[28] Directions to IBUs for operations of the Foreign Currency Accounts of Indian resident individuals opened under the Liberalised Remittance Scheme, IFSCA, (13.12.2024), [Link at: International Financial Services Centres Authority].
[29] Guidelines on setting up and operation of International Trade Finance Service Platform, IFSCA, (23.12.2024), [Link at: International Financial Services Centres Authority].
[30] Companies Act, 2013, [Link at: CompaniesAct2013.pdf].