The IFSCA Banking Handbook GEN Direction- Version 4.0

The IFSCA Banking Handbook: General Directions 1 The IFSCA Banking Handbook General Directions- V 4.0 (GEN) The IFSCA Banking Handbook: General Directions- v 4.0 2 Contents Interpretation 5-8 1. Legal framework…………………………………………………………………………6 2. IFSCA Banking Regulation……………………………………………………………..6 3. Purpose of the IFSCA Banking Handbook …………………………………………...7 4. Application of IFSCA Banking Handbook …………………………………………….7 5. Structure and Components of IFSCA Banking Handbook ………………………….7 General Directions (GEN) 9-58 MODULE NO.1 Licensing of Banking Units (LIBU) 10-20 1. Requirement for license ……………………………………………………………….11 2. Application for license ………………………………………………………………....11 3. Minimum conditions for consideration of license application ………………………11 4. Transitional Provisions …………………………………………………………………12 5. Conditions for granting license ………………………………………………………..12 6. Additional conditions for a Banking company not having presence in India applying to set up an IBU in IFSC……………………………………………………..13 7. Issuance / Denial of license …………………………………………………………….13 Annex I: Form for application for a license by a Bank desiring to commence banking business at IFSC …………………………………………………........................14 Annex 2: Information to be provided by Banks desirous of establishing presence in GIFT SEZ IFSC……………………………………………………………………………………16 MODULE NO.2 Governance (GOV) 21-27 1. Application …………………………………………………………………………….22 The IFSCA Banking Handbook: General Directions- v 4.0 3 2. Definitions ……………………………………………………………………………..22 3. Appointment of the Governing Body ……………………………………………….23 4. Principles of Governance ……………………………………………………………24 5. Duties of the Governing body ……………………………………………………….25 6. Management information …………………………………………………………….26 7. Remuneration structure and strategy ………………………………………………26 8. Staffing …………………………………………………………………………………27 9. Compliance ……………………………………………………………………………27 MODULE NO.3 Controlled and Designated Functions (CODF) 28-42 1. Application ………………………………………………………………………………29 2. Definitions ……………………………………………………………………………….29 3. Mandatory appointments ………………………………………………………………29 4. Controlled Functions ……………………………………………………………………30 5. Exercise of two or more controlled functions by same individual ………………….30 6. Application for Approved Individual status ……………………………………………31 7. Criteria for approval of Approved Individual ………………………………………….31 8. Designated Functions …………………………………………………………………..32 9. Criteria for appointment of an employee to undertake a Designated function…….32 Annex : Application for ‘Approved Individual’ status in an IBU to exercise a Controlled Function ………………………………………………………………………………...........34 MODULE NO.4 Core Principles (CORP) 43-46 1. Application ………………………………………………………………………………..44 2. Principles for IBUs ……………………………………………………………………….44 3. Principles for Approved Individuals and other employees …………………………. 45 MODULE NO.5 Systems and Controls (SYSCO) 47-52 1. Application ………………………………………………………………………………..48 The IFSCA Banking Handbook: General Directions- v 4.0 4 2. General requirements ……………………………………………………………………48 3. Outsourcing ……………………………………………………………………………….49 4. Management of risks …………………………………………………………………….50 5. Recordkeeping ……………………………………………………………………………51 MODULE NO.6 Supervision (SUP) 53-55 1. Supervisory powers of the Authority …………………………………………………….54 2. Powers of supervision over BUs and banking business in IFSC …………………….54 3. Supervision in respect of prudential requirements ……………………………………..55 MODULE NO.7 Raising queries pertaining to banking (QUEST) 56-58 1. General Provisions ……………………………………………………………………………………57 2. Legal framework for issuing this guidance …………………………………………………………57 3. Eligible entities ………………………………………………………………………………………..57 4. Language ………………………………………………………………………………………………57 5. Subject matter of questions ……………………………………………………………………….....57 6. Manner of asking questions ………………………………………………………………………….58 7. Priority of reply ………………………………………………………………………………………...58 8. Manner and timeline of reply ………………………………………………………………………...59 9. Objectives to be achieved ……………………………………………………………………………59 The IFSCA Banking Handbook: General Directions- v 4.0 5 IFSCA BANKING HANDBOOK INTERPRETATION The IFSCA Banking Handbook: General Directions- v 4.0 6 1. Legal framework i. The International Financial Services Centres Authority Act, 2019 (IFSCA Act) provides the foundation for regulatory framework, under the broad definitions of ‘financial institution’, ‘financial services’ and ‘financial product’, for entities and activities including those related to banking business. ii. Apart from the IFSCA Act, other legislations mentioned in First Schedule of the IFSCA Act, such as the Reserve Bank of India Act, 1934 (RBI Act); the Banking Regulation Act, 1949 (B R Act); the Securities Contracts (Regulations) Act, 1956 (SCRA Act); the Securities and Exchange Board of India Act, 1992 (SEBI Act); the Foreign Exchange Management Act, 1999 (FEMA); the Credit Information Companies (Regulation) Act, 2005 (CIC Act), the Payment and Settlement Systems Act, 2007 (PSS Act), among others, provide the necessary references related to the powers of the Authority in relation to financial products, financial services and financial institutions. The relevant provisions of such Acts and other laws of India shall also be applicable for banking and other businesses in IFSCs. Accordingly, the IBUs must ensure that they are in compliance with all the relevant provisions of the applicable laws of India, unless specifically exempted iii. In case any applicable statute mandates the requirement of audit of the books of accounts of the IBU (Statutory audit), the audit shall be conducted by an entity eligible to conduct such audit as per the respective statute. In case the statute is silent on the eligible entity, the appropriate entity to undertake the Audit may be decided by the IBU. 2. IFSCA Banking Regulation i. IFSCA’s functions and powers for making Regulations i. The IFSCA Act, in terms of Section 28(1) empowers the Authority to, by notification, make Regulations consistent with the IFSCA Act and the ‘Rules’ made thereunder by the Government of India, for carrying out the provisions of the IFSCA Act. ii. In terms of Section 12(1) of the IFSCA Act, one of the main functions of the Authority is to develop and regulate the financial products, financial services and financial institutions in IFSCs, by such measures as it deems fit, subject to the provisions of the IFSCA Act. The IFSCA Act, under Section 13(1), enables the Authority to exercise all powers exercisable by an appropriate regulator, under other legislations included in First Schedule of the IFSCA Act, in so far as it relates to the regulation of the financial products, financial services or financial institutions, as the case may be. ii. IFSCA Banking Regulations i. The IFSCA Banking Regulations made and notified, including the amendments made to them, from time to time - last updated on July 6, 2021, lay down the regulatory framework for IFSC Banking Units (IBUs) and their activities in an IFSC. ii. An IBU means a financial institution under clause (c) of sub-section (1) of Section 3 of the Act that is licensed by the Authority to undertake permissible activities under the IFSCA Banking Regulations. iii. The IFSCA Banking Regulations provide that the Authority may specify norms, procedures, processes, manners or provide relaxations, by way of guidelines or circulars, for the purposes of implementation of these regulations and matters The IFSCA Banking Handbook: General Directions- v 4.0 7 incidental thereto, or in order to facilitate and regulate financial services relating to banking activities in an IFSC. iii. Other IFSCA Regulations applicable for IBUs In addition to the IFSCA Banking Regulations, some or all the provisions of other Regulations issued by the Authority may be made applicable to the IBUs in respect of certain types of activities. 3. Purpose of the IFSCA Banking Handbook i. The IFSCA Banking Handbook (‘Handbook’) contains the directions of the Authority to the Banking Units (BUs) operating as branch of a Banking Company (also referred to as ‘parent bank’ in the IFSCA Banking Regulations). Unless generally or specifically exempted, the BUs are required to comply with the directions in this Handbook without fail. ii. The Authority may, where it feels necessary to do so, issue “Guidance” on the directions for the purpose of amplifying and clarifying the requirements of the directions. BUs are required to take note of the Guidance while complying with the Directions. However, strict compliance of the requirements of the Guidance is not expected as long as the IBU has complied with requirements of the Directions iii. The Handbook has three components – General directions, Conduct of Business directions and Prudential Directions applicable to BUs. 4. Application of IFSCA Banking Handbook i. The IFSCA Banking Handbook shall apply to all IBUs. ii. The IBUs shall be required to follow, in addition to the IFSCA Banking Handbook, the regulations / directions / circulars / guidelines / frameworks issued by the Authority in respect of certain specific permitted activities such as Portfolio Management Services, Investment Advisory services, Custodian services, Factoring and Forfaiting, Aircraft Leasing, International Trade Financing Services (ITFS) Platforms and any other such regulations / directions / circulars / guidelines / frameworks issued by the Authority. 5. Structure and Components of IFSCA Banking Handbook i. The IFSCA Banking Handbook consists of the following three components –