In response to the Consultation Paper on the Review of IFSCA (Fund Management) Regulations, 2022, issued by the International Financial Services Centres Authority (IFSCA) on August 5, 2024, several public comments and suggestions were received. These insights came from various fund management entities (FMEs) and professionals operating within India’s International Financial Services Centre (IFSC), primarily GIFT City. The feedback, which spans regulatory clarifications, suggestions for improving compliance flexibility, and proposals for enhanced operational efficiency, touches on key aspects of fund management operations in the IFSC.
- Custodian Appointment Flexibility
One of the initial suggestions came from a registered FME with East Asian market exposure. The proposal highlighted that many IFSCA-registered custodians do not provide services in East Asian markets. As a result, the entity sought flexibility to appoint custodians based in foreign jurisdictions, in compliance with local laws where the securities are issued. The suggestion emphasized that such custodians should be regulated by the local financial sector authority, as was previously agreed with IFSCA. The FME has since onboarded a custodian in Hong Kong, offering services to the firm’s outbound investment schemes. - Clarification on FIF Structure
There was a request for more clarity on the structure of Fund of Funds (FIFs). Specifically, suggestions were made to allow a FIF to be managed either by a Fund Manager Entity (FME) or by a family-owned FME. The aim was to clarify whether FIFs, particularly those investing through family-controlled entities, could benefit from more flexible guidelines regarding fund management. - Appointment of Key Managerial Personnel (KMP)
A recurring theme in the comments related to the appointment and continuity of Key Managerial Personnel (KMPs). For instance, one suggestion proposed relaxing the requirement to appoint additional KMPs if the assets under management (AUM) fall below the prescribed threshold for a period of three consecutive years. This was deemed necessary given the fluctuating nature of asset valuations, which may only become clear two months after the end of a financial year. The FME suggested allowing six months to appoint additional KMPs to align with the actual AUM. - Disclosures and Reporting Requirements
Several comments were directed towards regulations 24(2) and 24(3), which mandate periodic disclosures and reporting. It was proposed that FMEs should be granted flexibility to choose the half-yearly reporting periods (September/March) and to allow for more extended reporting timelines compared to the existing regulations. This request was particularly relevant in light of reporting timelines observed in the SEBI AIF Regulations. - Credit Rating Agencies and Valuation
Regulation 26(2) and 38(2) received suggestions for clarity regarding asset valuation by Credit Rating Agencies (CRAs). Since CRAs are already allowed to value assets per a circular issued in July 2024, stakeholders suggested explicitly incorporating this into the regulations for consistency and ease of understanding. - Registered Valuers and Ancillary Service Framework
The issue of Registered Valuers (RVs) under the Ancillary Service Framework was also raised. The feedback highlighted the absence of a specific category for valuers within the current framework. It was suggested that valuers should be included under the “Management Consultancy” category until a more appropriate framework for RVs in GIFT City is developed. Additionally, it was recommended that only branches of Registered Valuer Entities (RVEs) should be permitted to provide valuation services within the IFSC, to enhance operational clarity. - Minimum Experience Requirements for KMPs
A significant portion of the feedback revolved around experience requirements for KMPs. Many respondents suggested removing or modifying the experience criteria for KMPs, particularly the requirement for a specific number of years of experience. This recommendation aligned with recent changes in SEBI’s regulations, which replaced the experience requirement with a certification-based approach. Respondents argued that this move would attract a broader pool of qualified professionals to the IFSC, thus enhancing its competitiveness. - Inclusion of Broader Certification Institutions
Lastly, feedback also included proposals to expand the list of acceptable institutions providing certifications for KMPs. Including institutions such as recognized stock exchanges and other regulatory bodies would diversify the talent pool and increase the attractiveness of the IFSC for fund management activities.
