Alerts & Updates 16th Dec 2024
International Financial Services Centre Authority (“IFSCA”) has published a consultation paper dated December 6, 2024 seeking public comments on the Draft IFSCA (KYC Registration Agency) Regulations, 2024 (“IFSC KRA Regulations”), which sets out a framework for Know Your Customer Registration Agencies (“KRAs”) to operate in an International Financial Services Centre (“IFSC”). The Indian domestic securities market has had the SEBI KYC (Know Your Client) registration agency regulations, 2011 (“SEBI KRA Regulations”) for over 13 years now, and the introduction of the IFSCA KRA Regulations is a welcome step to address inefficiencies in the Know-Your-Customer (“KYC”) process within GIFT City, the only IFSC currently in existence. Absence of a centralised KYC records registry leads to inefficiencies, with clients having to undergo repetitive KYC processes for multiple regulated entities. The IFSC KRA Regulation aims to establish a centralized platform for streamlined KYC verification, reducing duplication, enhancing compliance, and promoting interoperability with SEBI KRAs and international best practices.
The following are the salient features of the proposed IFSC KRA Regulations and an analysis of how they compare with the SEBI KRA Regulations:
The IFSC KRA Regulations allow (i) wholly owned subsidiaries of recognized stock exchanges, (ii) depositories, and (iii) SEBI- registered KRAs in India or in foreign jurisdictions to be eligible to be registered as a KRA. The applicant must also have a minimum net worth of USD 1 (one) million. The SEBI KRA Regulations limit the eligibility to domestic entities and has a higher net worth requirement of INR 25,00,00,000 (Rupees Twenty-Five Crore).
Just like the SEBI KRA Regulations, the IFSC KRA Regulations requires the KRAs to appoint a Compliance Officer (“CO”) for monitoring compliance with applicable laws, regulations, and guidelines. . Under the IFSC KRA Regulations, a KRA must also have Principal Officer (“PO”) who has at least five years of experience in financial markets. There are no references to a PO under the SEBI KRA Regulations. The IFSC KRA Regulations require the PO and the CO to be based in the IFSC.
Just like the SEBI KRA Regulations, the IFSCA KRA Regulations also emphasizes the importance of grievance redressal as a critical aspect of its regulatory frameworks. However, the IFSCA KRA Regulations differs from the SEBI KRA Regulations in structure, timelines, and specific procedures. The SEBI KRA Regulations, provide for a strict timeline of 21 (twenty-one) days for grievance redressal, whilst no such time-limit has been prescribed in the proposed IFSC KRA Regulations. Further, the SEBI KRA Regulations also mandate mediation, conciliation, and arbitration, for resolving claims or disputes between KRAs and intermediaries. The IFSCA KRA Regulations do not prescribe mandatory mediation, conciliation, or arbitration.
Just like the SEBI KRA Regulations, the IFSCA KRA Regulations also mandate that the KYC data must be stored electronically, ensuring that the data is safeguarded and easily retrievable when required. The proposed IFSCA regulations specify the use of appropriate data encryption and other cybersecurity measures to safeguard sensitive information. The KYC documents of the clients must be kept for a minimum period of at least 5 (five) years after the business relationship has ended with the client. As in the case of the SEBI KRA Regulations, the IFSC KRA Regulations also require the KYC documents to be backed up at a different location.
The IFSCA KRA Regulations specify that a KRA in the IFSC will be connected to any central KYC registry authorised by the Central Government for the purpose of collation and sharing of the KYC information in the financial sector. The IFSCA KRA Regulations specifically refer to the Central KYC Records Registry (“CKYCRR”). However, the IFSCA regulations specifically exempt foreign nationals transacting in the IFSC from the requirement of storing, safeguarding, and retrieving their KYC records in the CKYCRR under the Prevention of Money Laundering (Maintenance of Records) Rules, 2005. Though foreign clients are not mandated to store their KYC records in the domestic CKYCRR, they are required to comply with the IFSCA’s KYC framework.
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
Zaynali Badami, Advocate – Email – zaynalibadami@elp-in.com
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