IFSCA steps up oversight of capital market intermediaries in GIFT IFSC over non-compliance

IFSCA steps up oversight of capital market intermediaries in GIFT IFSC over non-compliance

Gujarat’s GIFT City (Gujarat International Finance Tec-City) has grown to nurture over 200 registered Fund Management Entities (FMEs) and hundreds of Capital Market Intermediaries (CMIs).

While many more CMIs are considering setting up or expanding operations here, recent developments surrounding  International Financial Services Centres Authority (IFSCA) inspections might have landed some of them in trouble. IFSCA is the regulator overseeing GIFT City.

According to a source, a recent batch of show-cause notices (SCNs) appears to have exceeded the previous levels.

For context, the IFSCA bulletin covering July to September 2025 reported one explicit SCN to a CMI, along with regulatory actions against nine  FMEs.

Industry sources say they were slightly spooked by the latest round of checks by the IFSCA. The main worry centres on the number and implications of SCNs issued after IFSCA’s market-intelligence visits conducted from late February to early March 2026.

IFSCA has not officially confirmed any of these details.

The issues flagged during the visits included offices being closed or unattended during business hours, absence of key personnel such as the Principal Officer or Compliance Officer, limited awareness of regulatory requirements among those officers, insufficient infrastructure, use of remote-access trading software, like AnyDesk or UltraViewer, and situations where a Compliance Officer was also handling trading activities — creating a potential conflict of interest.

“Certain issues, like a single unattended visit or occasional remote tool use, seem modest compared to the escalation risk,” said one industry source familiar with the GIFT City ecosystem. “It is leading some to weigh the compliance burden more carefully.”

Another source added: “A large FME was apparently called to IFSCA’s office with senior management to discuss repeated issues. There were also some internal discussions highlighting the gravity of the situation.”

While these specific accounts have not been officially confirmed by the entities involved or by the regulator, IFSCA addressed the broader matter in its official press release issued on March 19, 2026.

Key excerpts from IFSCA’s latest press release

“The International Financial Services Centres Authority (IFSCA) has been continuously undertaking supervisory measures to assess compliance by Capital Market Intermediaries (CMIs) operating in the GIFT International Financial Services Centre (IFSC). As part of these measures, IFSCA has been conducting multiple rounds of market intelligence visits at the registered office premises of CMIs to verify the presence of substance, such as presence of Principal Officer and Compliance Officer, adequacy of infrastructure, etc. in accordance with the provisions of the IFSCA Capital Market Intermediaries Regulations, 2025.

During these supervisory visits, certain CMIs were observed to be non-compliant with the applicable regulatory requirements. Below are key observations noted during the market intelligence visits:

Some CMIs were found to be closed or unattended on multiple occasions, during business hours.

In some CMIs, neither the Principal Officer nor the Compliance Officer was present. Moreover, no authorised personnel were available to respond to queries from the IFSCA’s supervision team regarding business operations. In some CMIs, one common person was appointed both as Principal Officer and Compliance Officer. In a few cases, these instances were repeated despite the issuance of Warnings/Advisories by the Authority to the CMIs.

In some CMIs, the designated Principal Officers/Compliance Officers lack adequate awareness of the regulatory framework applicable to Capital Market Intermediaries. Additionally, it was observed that in some cases, only back-office staff were present during inspections.

Some CMIs were found lacking necessary infrastructure required to effectively carry out their business activities.

Based on the supervisory findings, IFSCA has initiated appropriate regulatory action against the concerned CMIs, it said.

Master key registration process

Recent updates to the rules (January 2026) introduced a simpler “Master Key” registration process for multiple activities and some flexibility on officer roles. However, the core requirements for actual physical presence, proper infrastructure, and on-site operations have not changed.

Many industry participants view these enforcement steps as necessary for a fast-growing financial hub, although some suggest a need to balance strict oversight with practical realities.

This focus on “substance” also relates to misutilization of wider concerns about tax incentives in GIFT City. Under Section 80LA of the Income Tax Act, eligible units can claim a 100 percent tax deduction on certain profits for any 10 out of 15 years — a major attraction for genuine international business. At the same time, some observers note that a few entities maintain only minimal setups mainly to access this benefit. IFSCA’s emphasis on verifiable on-ground operations helps ensure these tax advantages support real economic activity rather than nominal registrations.