The expert committee constituted by the Ministry of Finance has recommended that the Gujarat International Finance Tech-City International Financial Services Centre should provide clear criteria for setting up a financial services company.
The company should be regulated by one of India’s professional bodies, as a safeguard against the reorganisation of existing domestic business in the GIFT City under the guise of new investment.
“These criteria should be designed to ensure that new businesses are not created merely by splitting up, reconstructing, or reorganising existing businesses in India. As a primary safeguard, the Committee recommends that entities set up in IFSC to carry out Bookkeeping, Accounting, Taxation, and Financial Crime Compliance Services should only be in the form of a company or a Limited Liability Partnership. Branch of an Indian company or LLP may be permitted only if the entity is regulated by any of the three professional bodies - The Institute of Chartered Accountants of India (ICAI), Institute of Company Secretaries of India (ICSI) or Institute of Cost Accountants of India (ICMAI). Any other entity established overseas may also be permitted to set-up a branch in IFSC only if it doesn’t have any presence in India,” the committee report stated.
The committee comprised experts from the industry, academia and the government. The Expert Committee, Chaired by ICAI President, submitted its set of recommendations in its report to K Rajaraman, Chairperson, International Financial Services Centre Authority, (IFSCA) on March 26, 2024.
The report from the IFSCA Expert Committee on developing the GIFT City into a Global Finance and Accounting Hub proposes a detailed and strategic approach to enhance India's global standing in financial services by leveraging policy reforms, including the recent classification of bookkeeping, accounting, taxation, and financial crime compliance services as financial services under the IFSCA Act 2019.
“The committee provides comprehensive recommendations on the definitions and scope of the newly included services, ensuring clarity and alignment with international best practices. This includes detailed proposals on the operational scope, qualifications for key managerial personnel, and the framework for safeguarding against the migration of existing domestic business to the IFSC under the guise of new investment,” Shri Venkatesh, Managing Partner, SKV Law Offices, told Moneycontrol.
The condition for setting up business operations is that they should be tested at the end of the first full financial year from the date of commencement of operations and after nine subsequent financial years, the committee recommends.
The report proposes a new regulation, which provides for a comprehensive and inclusive definition for bookkeeping, accounting, taxation, and financial crime compliance services. The Committee also suggests that these definitions should be reviewed and updated periodically to reflect the changing market dynamics and customer needs.
“By incorporating bookkeeping, accounting, taxation, and financial crime compliance into the framework of financial services, the committee recognises the potential for GIFT IFSC to attract a wide range of global and domestic businesses. This expansion is seen as a crucial step towards fulfilling the vision of GIFT IFSC as a hub that offers a full spectrum of financial services on par with other leading international financial centers,” Venkatesh said.
The committee suggests that the IFSCA should prescribe that the unit in IFSC should have a principal officer and a compliance officer. It also suggests that they should possess certain minimum qualifications and experience.
“The report emphasises the importance of high standards for qualifications and experience for principal officers and compliance officers within the IFSC. It underscores continuous education and skill development as essential for maintaining the highest levels of professionalism and compliance with global standards,” Venkatesh said.
Since certain businesses might already have been authorised by the IFSCA under the ancillary services framework, an appropriate grandfathering of those entities under the new regulations should be done, the report said.
The report advocates investment in physical and digital infrastructure, strategic global partnerships, and marketing efforts to showcase GIFT IFSC's unique value propositions. To foster innovation and excellence in financial services, the report recommends establishing partnerships with leading global financial bodies and academic institutions. The creation of centers of excellence within GIFT IFSC is envisioned to serve as incubators for cutting-edge research, training, and development in financial services.
“Overall, the Expert Committee's report represents a strategic blueprint for leveraging India's strengths in finance and accounting to catalyse economic growth, attract investment, and establish GIFT IFSC as a cornerstone of global financial infrastructure,” Rohan Rai, Associate Partner of law firm RR Legal Partners, told Moneycontrol.
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