The revised IFSCA guidelines for setting up and operating these platforms, released on December 23, 2024, introduce key changes aimed at enhancing operational flexibility and expanding the scope of services. These changes come after extensive consultations with market participants and stakeholders following the initial guidelines issued on July 9, 2021.
Key Changes in the Revised ITFS Guidelines
The revisions to the ITFS guidelines offer significant updates across several areas, including eligibility criteria, operational scope, and participant categories. Below are the key highlights:
- Eligibility Criteria
The revised guidelines streamline the application process for entities seeking to set up ITFS platforms in the IFSC. Instead of the previous requirement based solely on the parent company’s net worth, applicants now need to meet specific financial, technological, and general criteria. This change aims to ensure that applicants have the required expertise, infrastructure, and financial stability to operate in the dynamic trade finance space. - On-Tap Registration Process
One of the most important updates is the introduction of an “on-tap” registration process. Under this new framework, entities can apply for provisional or full registration at any time, as opposed to adhering to a fixed timeline. This flexibility is expected to reduce the waiting period for eligible entities and foster greater participation in the IFSC-based ITFS ecosystem. - Permissible Activities
The scope of permissible activities for ITFS platforms has been expanded. Not only can these platforms facilitate primary trade finance services, but they can now also enable secondary market transactions for trade finance units (TFUs), thereby enhancing liquidity. Additionally, ITFS platforms can register as payment system operators under the IFSCA (Payment and Settlement Systems) Regulations, 2024, which will allow them to offer clearing and settlement services, further streamlining the trade finance process. - Eligible Participants
The list of eligible participants has also been broadened. In addition to financiers, exporters, importers, and insurance entities, payment service providers are now included. This inclusion allows for smoother currency exchanges and more efficient payment processing for global traders, further enhancing the platform’s accessibility and efficiency. - Expanding the Scope of Financiers
The guidelines now allow a broader range of financiers to participate in the ITFS platform. Previously limited to banking units and licensed finance companies, the revised guidelines now permit factoring entities registered under the Factoring Registration Act, 2011, and other entities licensed in IFSC to offer trade financing services. Additionally, the guidelines specify that all financiers must be from FATF-compliant jurisdictions, ensuring a high standard of financial integrity. - Bidding for Trade Finance Units (TFU)
A clarification has been issued regarding the bidding process for TFUs. Bids can now be made on an individual invoice basis or as a one-time bid for an entire turnover, providing greater flexibility to participants. - Complaint Handling and Grievance Redressal
ITFS platforms are now required to establish robust complaint handling and grievance redressal mechanisms. These systems will ensure that participant issues are addressed promptly and fairly, aligned with IFSCA’s guidelines. - Outsourcing
The revised guidelines introduce more flexibility in outsourcing non-core functions. ITFS platforms can now partner with third-party service providers for tasks like software management, provided the software is properly licensed, ensuring compliance and security.
Conclusion
The revised guidelines for ITFS platforms reflect an evolving approach to trade finance in the global market. With broader eligibility criteria, expanded permissible activities, and increased participant access, these changes are poised to create a more inclusive, efficient, and transparent environment for international trade financing. As the IFSC continues to grow as a global hub for trade finance, these updates represent a significant step in enhancing India’s role in global trade finance. For more information on the revised guidelines, visit the IFSCA website here.
