Alerts & Updates 10th Dec 2024

New IFSCA Rules For Complaint Handling and Grievance Redressal by Regulated Entities in the IFSC

Authors

Vinod Joseph Partner | Mumbai
Paridhi Jain Associate | Mumbai

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  • The International Financial Services Centres Authority (IFSCA) has issued a circular dated December 02, 2024, bearing reference F. No. IFSCA-LPRA/3/2024-Legal and Regulatory Affairs regarding Complaint Handling and Grievance Redressal by Regulated Entities in the IFSC (IFSCA December Circular).

  • Applicability and Effective Date

    The IFSCA December Circular states that it shall apply to all entities regulated by IFSCA dealing with any Consumer other than their Group Entities (Regulated Entities). The IFSCA December Circular provides that the term “Consumer” shall have the same meaning as assigned to “Client” or “Customer” under clause 1.3.11 of the IFSCA (Anti Money Laundering, Counter-Terrorist Financing and Know Your Customer) Guidelines, 2022, which states that a “Customer” or “Client” shall mean a person who is engaged in a financial transaction or activity with a Regulated Entity and includes a person on whose behalf the person engaged in the transaction or activity, is acting.

    The IFSCA December Circular also exempts from its application the following: foreign universities, foreign educational institutions, ancillary service providers, BATF[1] service providers, finance companies or finance units engaged in aircraft leasing or ship leasing and global/regional corporate treasury centres in the IFSC.

    The IFSCA December Circular is scheduled to come into force on January 15, 2025, by which time all entities to whom the IFSCA December Circular applies should have aligned their complaint handling procedures with the IFSCA December Circular.

  • Key Features
    • Complaints and Grievance Redressal Policy

    The IFSCA December Circular now mandates every Regulated Entity to have a policy for the handling of complaints and grievance redressal (CGR Policy). The CGR Policy shall have adequate mechanisms for receiving, handling and redressal of complaints in a fair, transparent and timely manner.

    Regulated Entities have been given the freedom to define in their CGR Policy what constitutes a ‘complaint’, depending upon the nature of financial products and services undertaken by the Regulated Entity in the IFSC.  Schedule-I of the IFSCA December Circular has an indicative list of matters not considered as ‘complaint’. Thus, for example, an anonymous complaint shall not be considered a complaint.

    The CGR Policy shall be duly approved by Regulated Entity’s governing body or its Board of Directors and prominently disclosed on the website of the Regulated Entity or on a dedicated webpage of its Group Entity, as applicable, under the heading “Complaint Handling and Grievance Redressal”. The name and contact details of the Complaint Redressal Officer (CRO) and the Complaint Redressal Appellate Officer (CRAO) shall also be prominently displayed under this section.

     

    • Redressal of complaints- Timelines

    On receipt of a complaint, the CRO of the Regulated Entity shall make an assessment on the merits of the complaint and either accept or reject the complaint. Acceptance has to be acknowledged in writing within 3 working days of receipt of the complaint and non-acceptance has to be notified to the complainant within 5 working days.

    A Regulated Entity is required to either resolve the complaint or reject it, preferably within 15 days acceptance of complaint, but no later than 30 days of acceptance. If the Regulated Entity rejects the complaint, it shall give reasons for rejection of the complaint, in writing.

    If a complainant is not satisfied with the resolution provided or if the complaint has been rejected, the complainant may file an appeal before the CRAO of the Regulated Entity preferably within 21 days from the receipt of the decision from the CRO. If a complainant is not satisfied with the decision of the Regulated Entity and has exhausted the appellate mechanism of the Regulated Entity, the complainant may file a complaint before the IFSCA, preferably within 21 days from the receipt of the decision from the Regulated Entity. Such appeal may be sent by email to: grievance-redressal@ifsca.gov.in

  • ELP Comments
    • The IFSCA December Circular defines a “Complaint Redressal Officer” or “CRO” and “Complaint Redressal Appellate Officer” or “CRAO”. However, the IFSCA December Circular does not have an operative clause stating that every Regulated Entity shall have a CRO and a CRAO.
    • Both the FME and the Fund are Regulated Entities. However, only Regulated Entities that deal with Consumers are required to comply with the IFSCA December Circular. Usually, a fund does not directly deal with the investors in the Fund. Investor relations is usually handled by the FME. Therefore, the FME shall have to comply with the IFSCA December Circular and appoint a CRO and a CRAO. The Fund’s trustee would also have to comply with the IFSCA December Circular since some crucial investor communications are dealt with by the trustee directly. However, the Fund itself, would not have to, unless it directly deals with the investors in the Fund.
    • The IFSCA December Circular states that a “CRO” shall be an employee of the Regulated Entity responsible for handling of complaints received from its consumers. Further, it states that a “CRAO” shall be a senior level person of the Regulated Entity designated for handling appeals of consumers against the decision taken by the Complaint Redressal Officer of the Regulated Entity. The CRAO shall be either a Key Managerial Personnel or one level below a KMP. Currently:
      • As per the IFSCA (Fund Management) Regulations, 2022 (“IFSCA FM Regulations”), an Authorised FME, which may launch Venture Capital Schemes in an IFSC, is required to have just one KMP, namely a principal officer. In order to comply with the IFSCA December Circular, the Authorised FME would now be required to have a CRO and CRAO, which in effect means that the Authorised FME would be required to have at least two employees.
      • A Registered FME, which may launch Restricted Schemes in an IFSC, is required to have a principal officer and a compliance officer, both of whom would be KMPs. Presumably, an FME with just two employees who serve as its principal officer and a compliance officer shall have to require the principal officer to serve as its CRAO and its compliance officer to serve as its CRO. In effect both the CRAO and CRO would be KMPs, though the IFSCA December Circular does not require even the CRAO to be a KMP.
    • Even though the IFSCA December Circular states that Regulated Entities may define in their CGR Policy what constitutes a ‘complaint’, depending upon the nature of financial products and services undertaken by the Regulated Entity in the IFSC, it is unclear if a Regulated Entity can draft a CGR Policy that is contrary to Schedule-I of the IFSCA December Circular which has an indicative list of matters that should not be considered as ‘complaint’. For example, can the CGR Policy of a Regulated Entity state that even an anonymous complaint shall be entertained?
    • The grievance redressal mechanisms envisaged by the IFSCA for its Regulated Entities as per the IFSCA December Circular is similar in principle to the one envisaged by SEBI. However, SEBI also offers aggrieved investors a centralised web-based complaint redressal facilitation platform i.e., “SCORES” .  Investors with unresolved grievances may lodge complaints on SCORE which is then forwarded to the regulated entity and the regulated entity is required to resolve such complaint within 21 days.

    Please find here a link to the IFSCA December Circular

    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

    Paridhi Jain, Associate – Email – paridhijain@elp-in.com

     

  • References

    [1] Service Providers of (Book-keeping, Accounting, Taxation and Financial Crime Compliance Services who are regulated by the IFSCA (Book-keeping, Accounting, Taxation and Financial Crime Compliance Services) Regulations, 2024.

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