International Financial Services Centre Authority (IFSCA) has recently introduced new regulations facilitating the direct listing of equity shares by Indian companies on the stock exchanges within the International Financial Services Centre (IFSC).
The key highlight of these regulations is the meticulous monitoring of investments originating from countries sharing a land border with India. This measure aligns with the Foreign Exchange Management (Non-debt Instruments) Amendment Rules, 2024 and the Companies (Listing of Equity Shares in Permissible Jurisdictions) Rules, 2024, issued by the Government of India on January 24, 2024.
Central to this regulatory framework is Clause 2 of Schedule XI of the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 (NDI Rules), which mandates that equity shares held by individuals or entities from countries sharing a land border with India require prior approval from the Central Government. To ensure compliance with this provision, IFSCA has delineated a comprehensive mechanism.
Under this mechanism:
Know Your Customer (KYC) and Client Due Diligence (CDD): Broker Dealers, Depository Participants, and Custodians within the IFSC are mandated to conduct thorough KYC and CDD processes, including the identification of beneficial owners. They must maintain an updated list of clients falling under the specified categories.
Declaration by Clients: Clients from countries sharing a land border with India must sign a declaration affirming compliance with the regulations. Similarly, clients from other countries must provide assurances regarding the absence of any connection to border-sharing nations.
Market Participation Restrictions: Stringent measures are in place to restrict Identified Clients from participating in primary market issuances and secondary market trading of equity shares of Indian companies without requisite Central Government approval.
Off-Market Transfer Oversight: The IFSC’s depository is tasked with ensuring that Identified Clients do not hold equity shares of Indian companies through off-market transfers without proper authorization.
Monitoring and Surveillance: Stock exchanges in the IFSC will conduct regular market surveillance to detect any unauthorized trading activity by Identified Clients. Reports will be submitted to IFSCA on a monthly basis to ensure strict compliance.
This circular underscores IFSCA’s commitment to maintaining the integrity and transparency of the financial ecosystem within the IFSC. By imposing robust compliance measures, the authority aims to instill confidence among investors while safeguarding against potential risks associated with cross-border investments.
It is imperative for stakeholders, including stock exchanges, broker dealers, depositories, depository participants, and custodians, to promptly implement the prescribed mechanisms outlined in the circular. The directives outlined therein come into force immediately, emphasizing the urgency of compliance.
In conclusion, the introduction of these regulations signifies a proactive approach towards enhancing regulatory oversight and investor protection within the IFSC. By striking a balance between facilitating international investments and safeguarding national interests, IFSCA sets a precedent for regulatory excellence in the global financial landscape.
