The International Financial Services Centre Authority (IFSCA) recently unveiled a more liberal regulatory regime aimed at encouraging the establishment of a broad range of international and Indian insurance businesses in the Gujarat International Finance Tec-City (GIFT City). Notified by IFSCA in October 2021, the new regulations pertain to setting up IFSC Insurance Offices (IIOs) and IFSC Insurance Intermediaries Offices (IIIOs).
Entities Eligible to Establish Insurance Businesses
Under the new regulations, not only insurance entities but also non-insurance entities can incorporate public companies in IFSC to conduct insurance or reinsurance business. Reinsurance is a strategy used by insurance companies to transfer parts of their risk portfolios to other entities via an agreement so as to decrease the likelihood of having to pay out a large insurance claim.
Indian insurance companies now have the opportunity to create subsidiaries to carry out insurance or reinsurance businesses as IIO. Alongside Insurance Regulatory and Development Authority of India (IRDAI) registered intermediaries such as insurance brokers and corporate agents, foreign intermediaries are also allowed to establish IIOs.
Paid-up Capital Requirement
For branches, no capital investment is required. As for subsidiaries, new insurance or reinsurance companies will need a paid-up capital of Rs 100 crore for insurance and Rs 200 crore for reinsurance according to the Insurance Act, 1938. For foreign insurers or reinsurers setting up IIOs as branches, no local or domestic capital will be necessary. The assigned capital of USD 1.5 million can be maintained in home jurisdictions. Furthermore, there will be no local or domestic solvency requirement for IIO in IFSC. The assigned capital solvency margin needs to be maintained in the home jurisdiction.
The Implication of New Regulations
The new regulations are anticipated to unlock opportunities for international insurers and reinsurers. The friendly regulatory framework is expected to meet the aspirations and expectations of the players. These facilities will assist India in creating a global reinsurance hub, positioning it as a competitor against offshore financial centers such as Singapore, Dubai, and Hong Kong, who currently dominate the insurance business in Asia.
About International Financial Services Centres Authority
Established in April 2020 under the International Financial Services Centres Authority Act, 2019, the IFSCA is headquartered at GIFT City, Gandhinagar, Gujarat. Its role is to regulate all financial services, products, and financial institutions in an IFSC. They also recommend to the Central Government other potential financial products, services, and institutions that could be allowed in IFSCs. Any powers exercises by the respective financial sector regulatory under their respective Acts shall be solely exercised by the IFSCA in the IFSCs regarding the regulation of financial products, services, and FIs that are permitted in the IFSC.
Processes, Procedures and Grants
The Authority’s processes and procedures are governed according to the provisions of the respective Acts of Parliament of India applicable to related financial products, services, or institutions. It may receive grants from the Central Government upon due appropriation made by Parliament by law. The provided funds are intended for use towards fulfilling the purposes of the Authority. Transactions within IFSCs shall be conducted in foreign currency as stipulated by the Authority, in consultation with the Central Government.
About International Financial Services Centre
An IFSC allows previously offshore financial transactions made by Indian corporates and overseas branches/subsidiaries of Financial Institutions to be carried out in India. The business and regulatory environment provided by IFSCs are on par with those of leading international financial centres around the world, such as London and Singapore. IFSCs are designed to provide Indian corporates with easier, more efficient access to global financial markets, as well as to further enhance and stimulate the growth of financial markets within India.
