Data PrivacyBook keeping, Accounting, Taxation, and Financial crime compliance services as financial services under the international financial services centers authority act of 2019

INTRODUCTION

The International Financial Services Centres Authority (hereinafter referred to as “IFSCA”) was established on April 27, 2020 under the International Financial Services Centres Authority Act, 2019 (hereinafter referred to as “the Act”). It is headquartered at GIFT City, Gandhinagar in Gujarat.

The IFSCA is a unified authority for the development and regulation of financial products, financial services and financial institutions in the International Financial Services Centre (hereinafter referred to as “IFSC”) in India. At present, the GIFT IFSC is the maiden international financial services centre in India. Prior to the establishment of IFSCA, the domestic financial regulators, namely, RBI, SEBI, PFRDA and IRDAI regulated the business in IFSC.

An IFSC is a financial centre that caters to customers outside the jurisdiction of the domestic economy. It is also known as an offshore financial centre since it deals with flow of finance, financial products and services across borders. An IFSC is, thus, a jurisdiction that provides world class financial services to non-residents and residents, to the extent permissible under the current regulations, in a currency other than the domestic currency of the location where the IFSC is located.

NOTIFICATION

According to the Gazette notification, the Ministry of Finance (hereinafter referred to as “MoF”), in its notification dated January 18, 2024, has extended the  ambit of financial services offered by the units of IFSC regulated by the IFSCA. The Act defines the types of operations that fall under the category of financial services, including taking deposits and setting up and running investment programs.

According to the Gazette notification, in exercise of the powers conferred by sub-clause (xiv) of clause (e) of sub-section (1) of Section 3 of the Act, the Central Government notified the following as financial services, namely:

• Book-Keeping services
• Accounting services
• Taxation services
• Financial crime compliance services.

Further, the notification provided that the financial services shall be offered by units in an IFSC regulated by the IFSCA, to non-residents whose business is not set up either by –

• splitting up of business already in existence in India; or
• reconstructing of business already in existence in India; or
• re-organizing of a business already in existence in India,

Here, financial crime compliance services are said to include services rendered in relation to compliance with the Anti-Money Laundering (hereinafter referred to as “AML”) or Countering the Financing of Terrorism (hereinafter referred to as “CFT”) measures and Financial Action Task Force (hereinafter referred to as “FATF”) recommendations, and other related activities.

THE WAY FORWARD

In terms of services like Countering Financing of Terrorism and Anti-Money Laundering, India lacks considerable competence. By offering these services through IFSC, India will be able to draw in talent and develop it going forward. India is considered to have cost-effective human resources in the world in terms of taxation and accounting services. The GIFT city would multiply the opportunities to export the services to the world and would soon become accountants of the whole world. The notification states that the financial services will be offered not to the residents but only to only those non-residents whose business is not set-up either by splitting up of business already in India or reconstructing or reorganizing business which is already in existence in India.

HOW THESE SERVICES ARE COVERED UNDER IFSCA ACT

1. Bookkeeping and Accounting Services:

The IFSCA Act encompasses a wide range of financial services, and bookkeeping and accounting services are integral components. These services involve maintaining financial records, preparing financial statements, and ensuring compliance with accounting standards.

2. Taxation Services:

Taxation services, including tax planning, compliance, and advisory, are covered under the IFSCA Act. The Act may specify regulations and guidelines for tax-related activities within the IFSCs.

3. Financial Crime Compliance Services:

The IFSCA Act recognizes the importance of preventing financial crimes such as money laundering, fraud, and terrorist financing. Financial crime compliance services, including due diligence, risk assessment, and reporting suspicious activities, are likely to be subject to regulation and oversight by the IFSCA.

4. Regulatory Oversight:

Under the IFSCA Act, the authority has the power to regulate, supervise, and oversee various financial services provided within IFSCs. This includes setting standards, issuing guidelines, and ensuring compliance with applicable laws and regulations.

5. Licensing and Registration:

Entities offering bookkeeping, accounting, taxation, and financial crime compliance services within IFSCs may need to obtain licenses or registrations from the IFSCA. The authority will establish the criteria and procedures for granting approvals to ensure the integrity of financial services provided.

6. Cross-Border Transactions:

IFSCs are designed to facilitate cross-border financial transactions. Therefore, the IFSCA Act may address the regulatory framework for international transactions related to bookkeeping, accounting, taxation, and financial crime compliance services.

AMLEGALS REMARKS

The strategic move of the Government of India in the financial landscape is expected to promote GIFT City as a global hub for accounting and taxation services. The practices of IFSC for international collaboration with financial institutions and regulatory bodies to promote cross-border financial activities to maintain the global best practice would prove to be beneficial for the growth of India and a step towards Global India.  IFSCA works to put GIFT city as a competitive player and an attractive destination for global financial players. It facilitates ease of doing business and provides regulatory frameworks that aligns with the international set of standards.

It’s essential for businesses and service providers operating within IFSCs to stay abreast of the specific regulations and guidelines issued by the IFSCA. The regulatory landscape may evolve over time, and compliance with the established standards is crucial for the smooth functioning of financial services within the IFSCs. Consulting with legal and regulatory experts familiar with the IFSCA framework is advisable for entities seeking to provide these financial services in IFSCs.

– Team AMLEGALS assisted by Mr. Pritam Kumar

For any queries or feedback feel free to reach out to mridusha.guha@amlegals.com or jason.james@amlegals.com