Framework for setting up of International Trade Financing Services Platform (‘ITFS’) for providing Trade Finance Services at International Financial Services Centres (‘IFSCs’)

Page 1 of 14 CIRCULAR F. No. 388/IFSCA/ ITFS Platform/2021-22 July 9, 2021 Subject: Framework for setting up of International Trade Financing Services Platform (‘ITFS’) for providing Trade Finance Services at International Financial Services Centres (‘IFSCs’). In exercise of the powers conferred by sub-clause (xii) of clause (e) of sub- section (1) of Section 3 of the International Financial Services Centres Authority Act, 2019 (hereinafter referred to as ‘IFSCA Act’), the Authority is empowered to make arrangements for carrying on financial services for the financial products permitted under the IFSCA Act. Credit Arrangements, which is a financial product, would inherently include Trade Financing Services. In order to facilitate International Trade Financing Services i.e. financing of International Trade flow, an institutional mechanism is required in the form of a dedicated electronic platform. 2. There are two important players in an International Trade Transaction viz. Exporters/Sellers (herein after referred as “Exporters”) and Importers/Buyers (herein after referred as “Importers”). Exporters and Importers face constraints in obtaining adequate finance, particularly in terms of their ability to convert their trade receivables into liquid funds or to obtain short term funding for their payments for import of goods / services. In order to enable Exporters and Importers to avail various types of trade finance facilities at competitive terms, the International Financial Services Centres Authority (hereinafter referred to as ‘IFSCA’), hereby provides the following framework for establishing ITFS in IFSCs as under: Page 2 of 14 A. Applicability: This framework shall apply to the entities seeking permission to set up ITFS under this framework. B. Definitions: For the purpose of this framework, (i) “Trade Financing Unit” refers to an invoice or a bill or any other standard trade document on the ITFS. Trade Financing Unit may be created either by the Exporter or Importer. (ii) “Financiers” shall mean a Banking Unit or a Finance Company/ Finance Unit, which is licenced/regulated/ registered by IFSCA or with any other financial sector regulator, in India or abroad, and is permitted to conduct Trade Finance Services. (iii) “International Trade Finance Service” or “ITFS” refers to an electronic platform for facilitating the trade finance requirements of Exporters and Importers, through multiple Financiers. (iv) “Reverse Trade Financing” refers to the process of initiating the creation of Trade Financing Unit by the Importer on ITFS. (v) “Standard Trade Documents” or “STD” refers to any document as agreed by the parties to the ITFS and includes any or all the following documents namely: a) Air Waybill; b) Bill of Lading; c) Certificate of Origin; d) Combined Transport Document; e) Draft (or Bill of Exchange); Page 3 of 14 f) Insurance Policy (or Certificate); g) Packing List/Specification; h) Inspection Certificate; and i) Invoice C. Permissible Activities: The parties to the ITFS shall be permitted to undertake or participate in International Trade Finance related activities which, inter-alia, includes Export Invoice Trade Financing, Reverse Trade Financing, Bill discounting under Letter of Credit, Supply Chain Finance for Exporters, Export Credit (Packing Credit), Insurance / Credit Guarantee, Factoring system and any other trade product. D. Application Process: An applicant desirous of setting up ITFS in an IFSC and fulfils the requirements as specified under this framework shall apply to IFSCA in the application form available in the Download section of the IFSCA website. The Authority, upon satisfaction, would, in the first instance, grant an in-principal approval to operate in the regulatory sandbox environment for such period as it may deem fit, before making it fully operational. E. Criteria for Setting up ITFS in an IFSC: An entity desirous of setting up and operating the ITFS in an IFSC shall fulfil the following criteria. If such entity is a Bank or a Finance Company, it shall incorporate a separate company in IFSC to be set up as ITFS. (a) Financial Criteria: (i) The parent entity or the promoters/promoter groups of the company applying to set up a company as ITFS in an IFSC should have a minimum net worth of USD 1 million. Page 4 of 14 (ii) The company proposed to be set up as ITFS shall have minimum paid up equity capital of USD 0.2 million or equivalent in any other freely convertible currency. (iii) The overall financial strength of the promoters/entity seeking to set up ITFS would be an important criterion of assessment and approval. (b) Due Diligence of Promoters (i) The Parent or the promoters/promoter groups of such company should be domiciled and regulated or registered in jurisdiction not identified in the public statement of Financial Action Task Force as ‘High Risk Jurisdictions’ subject to a ‘Call for Action’; or from any jurisdiction/ country specified by the Government of India by an order, or by way of agreement or treaty with other sovereign governments. (ii) IFSCA may, seek feedback about the applicant’s credentials from any regulator or statutory body, as deemed appropriate. (c) Technological Criteria The ITFS should have sound technological support for its operations. As such, the ITFS shall, at the minimum, fulfil the following technological requirements: (i) It shall provide electronic platform to all the participants; (ii) It shall disseminate the information about bills/ invoices, discounting and quotes in real time basis, supported by a robust MIS (Management Information System) to the relevant parties; (iii) It shall have a suitable Business Continuity Plan (BCP) including a disaster recovery site; (iv) It shall submit to IFSCA the technical audit report /feasibility study report conducted on the platform before starting operations; and Page 5 of 14 (v) It shall have an online surveillance capability which monitors positions, prices and volumes in real time and is able to check any manipulation of the system. F. Participants and Eligibility Criteria of the Participants in the ITFS: (i) Exporters, Importers, Financiers and Insurance/Credit Guarantee Institutions and other eligible entities will be the direct participants in the ITFS. (ii) The entities, their promoters/promoter groups should be domiciled and regulated or registered in jurisdiction not identified in the public statement of Financial Action Task Force as ‘High Risk Jurisdictions’ subject to a ‘Call for Action’ or from any jurisdiction/ country specified by the Government of India by an order or by way of agreement or treaty with other sovereign governments. (iii) Separate Master Agreements shall be executed amongst the participants i.e., between Financiers and ITFS, between ITFS and Exporters and between ITFS and Importers on or before entering into any transactions on ITFS. G. On-boarding, Know Your Customer & Anti Money Laundering: (i) On-boarding of all participants on the ITFS will be mandatory and these participants will be required to submit all KYC related documents, as specified, to the ITFS along with resolutions / documents specific to authorised personnel. Such authorised personnel would be provided with user credential for (multi- level) authorisations for ITFS. Indemnity in favour of ITFS, if required, may also be given if it is made part of the standardised on-boarding process. (ii) KYC and other relevant documents shall be made available to the Financiers by the Importer/Exporter. Page 6 of 14 (iii) All receipts for exports and all payments for imports by companies shall be routed by Exporters and Importers through the banks from who they have availed their working capital financing, for facilitating reporting to their respective regulators as required under the relevant legal framework.