Introduction
On October 27, 2025, the International Financial Services Centres Authority (IFSCA) issued a consultation paper (Consultation Paper) inviting public comments on its proposed changes to the existing regulatory framework for dematerialisation of securities by entities in the International Financial Services Centre (IFSC).
The Consultation Paper aims to streamline the process of obtaining International Securities Identification Numbers (ISINs) and ensure that entities established in the IFSC dematerialise and hold their securities with a depository registered with the IFSCA.
Existing Law
Section 23G of the Depositories Act, 1996 enables the IFSCA to regulate depositories of financial products, financial services, and financial institutions within the IFSC. Further, Regulation 44 of the IFSCA (Market Infrastructure Institutions) Regulations, 2021 (MII Regulations, 2021) provides that all securities and other permitted financial products in the IFSC shall be eligible to be held in dematerialised form with a recognised depository. Regulation 2(o) of the MII Regulations, 2021 defines a “recognised depository” to mean a depository in an IFSC recognised by IFSCA. However, Regulation 44 of the MII Regulations, 2021 does not mandate that securities and other permitted financial products in the IFSC shall be held in dematerialised form only with a recognised depository.
IFSCA’s Proposal
The draft circular attached to the Consultation Paper proposes the following key measures:
- Mandatory dematerialization with IFSC Depository: Entities established in the IFSC shall obtain ISINs from a depository registered with IFSCA, rather than from a domestic depository in India, for the dematerialization of securities and other permitted financial products issued by them.
- Permissible Use of International Central Securities Depositories (ICSDs): While entities must obtain ISINs from an IFSC-registered depository, they may continue to use ICSDs for issuance and listing of securities as permitted by the IFSCA (Listing) Regulations, 2024.
- Transition Period for the existing entities: Existing entities in the IFSC that have already dematerialized their securities with domestic depositories shall transfer these securities to an IFSC-based depository by March 31, 2026.
- Compliance and Reporting: India International Depository IFSC Limited, currently the only depository in the IFSC, shall submit a compliance report to IFSCA by April 30, 2026, confirming completion of the migration process.
| ELP Comments |
- IFSCA’s proposal is an important step toward strengthening the regulatory and infrastructural framework for securities issued by entities in the IFSC. This move comes in light of observations that certain IFSC entities continue to obtain International Securities Identification Numbers (ISINs) and hold their securities with domestic depositories in India, which will be inconsistent with the proposed regulatory framework.
- However, the transition process could present operational and logistical challenges for existing IFSC entities that currently hold their securities with domestic depositories, particularly since there is presently only one depository operating in the IFSC. Moreover, further clarity is required on the fees or costs involved in migrating and maintaining securities within the IFSC depository framework.
- The IFSCA’s approach towards depositories, as evidenced in the Consultation Paper, is in line with the approach taken by the IFSCA towards custodians. Under the IFSCA (Fund Management) Regulations, 2022 (FM Regulations 2022), Regulation 132 required FMEs managing (i) retail schemes, (ii) open-ended restricted schemes, and (iii) all other schemes managing assets under management (AUM) exceeding USD 70 million to appoint an independent custodian for the funds managed by them. However, the FM Regulations 2022 did not expressly require such custodians to be based in the IFSC.
- When the FM Regulations 2022 were replaced by the IFSCA (Fund Management) Regulations, 2025 (FM Regulations 2025), Regulation 132 of the FM Regulations 2025 mandated that the custodian appointed by FMEs shall be based in the IFSC, except in cases where local laws of the jurisdiction in which the securities are issued, require the appointment of a custodian in that jurisdiction. In such cases, the FME may appoint a custodian regulated by the financial sector regulator of that jurisdiction, subject to providing necessary information to the IFSCA when directed.
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The consultation paper can be accessed here.
We hope you have found this information useful. For any queries/clarifications please write to us at insights@elp-in.com or write to our authors:
Vinod Joseph, Partner – Email – vinodjoseph@elp-in.com
Akhil Ganatra, Associate- Email- akhilganatra@elp-in.com
