Framework for FinTech Entity in the International Financial Services Centres (IFSCs)

1 CIRCULAR F.No. 521/IFSCA/FinTech/FE Framework/2022-23 April 27, 2022 Subject: Framework for FinTech Entity in the International Financial Services Centres (IFSCs) Considering the importance of financial technology solutions or FinTech in promoting innovation of ideas and solutions in financial services market in the IFSC in India, a framework for authorization of FinTechs in IFSC has been provided as under: Applicability (1) This framework shall apply to all eligible Domestic or Foreign entities, desirous of obtaining authorization as FinTech Entity (FE) from International Financial Services Centres Authority (IFSCA), for participating in or undertaking one or more of the permissible activities under this framework. Definitions (2) In this framework, unless the context otherwise requires, the terms defined herein shall bear the meaning as assigned to them below and their cognate expression shall be construed accordingly: - (a) ‘Act’ means the International Financial Services Centres Authority Act, 2019 (50 of 2019); (b) ‘Applicant’ means an entity who makes an application to the Authority for getting authorization as FinTech Entity under this framework and includes but is not limited to financial institutions, financial technology companies, and technology firms partnering with or providing support to such businesses; (c) ‘Authority’ means the International Financial Services Centres Authority; 2 (d) ‘Cohorts or special programmes’ means business programmes run by companies or incubators that support early-stage, growth-driven FinTech companies through education, mentorship, etc. ; (e) ‘Domestic FinTechs’ means an entity that is not a ‘Foreign FinTech’; (f) ‘Domestic financial sector regulator’ shall mean all or any of the domestic financial services regulators namely the Reserve Bank of India, the Securities and Exchange Board of India, the Insurance Regulatory and Development Authority of India and the Pension Fund Regulatory and Development Authority. (g) ‘Evaluation Committee’ means an internal committee constituted by the Authority for screening, evaluation and processing of applications made under this Framework. (h) ‘FinTech’ includes financial technology solutions which result in new business models, applications, process or products in financial services regulated by the Authority or advanced/innovative technology solutions which aid and assists activities in relation to financial products, financial services and financial institutions; (i) ‘FinTech Entity’ means an entity authorized by the Authority under the appropriate framework and shall include both Domestic and Foreign FinTechs ; (j) ‘Foreign FinTechs’ means a non-resident entity from outside India engaged in the FinTech activity; (k) ‘Innovation Sandbox’ means a testing environment where FinTech Entities can test their ideas and solutions in isolation from the live market that may add value to the financial products or financial services offered in IFSC based on market related data made available to them by Financial Institutions operating in IFSC; (l) ‘Inter-Operable Regulatory Sandbox’ or ‘IORS’ means a testing environment for innovative hybrid financial products / services falling within the regulatory ambit of more than one domestic financial sector regulator; (m) ‘Regulatory Sandbox’ means a live environment with a limited set of real customers for a limited timeframe wherein entities operating in the capital market, banking, insurance and other financial services space in IFSC shall be granted certain exemptions / relaxations from applicability of certain regulatory provisions for experimenting FinTech ideas and solutions; 3 (n) ‘Overseas regulatory referral ‘refers to a co-operation mechanism between the Authority and any overseas financial sector regulator for facilitating the FinTechs that would like to operate in each other’s jurisdictions. (3) Words and expressions used and not defined in this framework but defined in the applicable Laws, and in particular, under the Act, or any rules or regulations made thereunder shall have the same meanings respectively assigned to them in those Acts, rules or regulations or any statutory modification or re-enactment thereto, as the case may be. Chapter I : Authorization Eligibility (4) An Applicant who satisfies any of the following conditions shall be eligible to make an application to IFSCA for Authorization under this Chapter: (i) Where the Applicant is from India: a) An entity registered with Department for Promotion of Industry and Internal Trade (DPIIT) as a start-up entity relating to FinTech; or b) An entity incorporated as a company under the Companies Act 2013, or as a Limited liability Partnership (LLP) under the Limited liability Partnership Act, 2008 or a ‘Branch’ of an Indian company or LLP in IFSC; or c) An entity working directly or indirectly in the ecosystem regulated by domestic financial sector regulator. (ii) Where the Applicant is from Outside India - An entity from FATF compliant countries/jurisdictions; (5) The Applicant proposes to use technology in its core product or service, business model, distribution model or methodology to solve the problem being targeted. (6) The Applicant must have: 4 (a) a deployable solution/working product; and (b) a revenue earning track record in at least one of the last three financial years. Permissible Activities (7) An Applicant shall be permitted to undertake one of the following activities under this Chapter: (a) Provide a financial technology (FinTech) solution which results in new business models, applications, process, or products in financial services regulated by the Authority. An illustrative list is at Annexure-I ; (b) Provide an advanced or emerging technology solution in allied areas/activities which aid and assist activities in relation to financial products, financial services and financial institutions (TechFin). An illustrative list of allied areas/activities is at Annexure-I. Application Process and Evaluation (8) An Applicant meeting the eligibility criteria under this Chapter shall apply to the Authority by way of an application at Annexure-II. (9) The application shall be signed by an Authorized person of the Applicant. (10) The application complete in all aspects shall be submitted at fe- sandbox@ifsca.gov.in, through electronic mail. (11) The application shall be subject to an evaluation process conducted by the Evaluation Committee and outcome of the application shall be informed to the Applicant. The process flow of dealing with an application is at Annexure- IV. Authorization as FinTech Entity (FE) (12) The Authority may, after examining the application and on being satisfied that the applicant has fulfilled the eligibility criteria, grant Authorization to the Applicant as a ‘FinTech Entity’, subject to the conditions that the Applicant: (a) separately incorporates an entity in the IFSC; or (b) establishes a branch or a subsidiary of an Indian or foreign incorporated entity in IFSC. 5 (13) In case the Authority is of the opinion that the Authorization under this Chapter cannot be granted, it shall communicate the deficiencies to the Applicant giving it thirty days’ time to rectify them. (14) If the Applicant fails to rectify such deficiencies to the satisfaction of the Authority within the specified time, the Authority may refuse to grant Authorization. Maintenance of Books of Accounts, Records and Documents (15) Every FinTech Entity shall maintain its records, documents and books of accounts in such freely convertible foreign currency other than INR, as may be declared by the Applicant at the time of making an application under this Part. Submissions of Report / Information (16) Every FinTech Entity shall furnish the following information to the IFSCA: (a) Duly certified copy of its audited annual financial statements within 30 days of its finalization. (b) Details of regulatory action, if any, within 15 days from the date of receipt of notice for initiation of regulatory action. (17) Every FinTech Entity shall submit the financial information to the IFSCA in US Dollar, unless otherwise specified by the IFSCA.