IFSCA Requests Entities in GIFT City to Await Clarification Following Latest Circular on RBI FLA FAQs
RBI Clarification on Foreign Asset Reporting Sparks Regulatory Caution
The International Financial Services Centres Authority (IFSCA) has issued a circular to financial institutions in GIFT City, directing them to hold off on taking any action based on a recent Reserve Bank of India (RBI) clarification on foreign asset reporting.
The circular, dated May 1, refers to questions 43, 44, and 45 of the RBI's updated FAQs on the annual Foreign Liabilities and Assets return under the Foreign Exchange Management Act, 1999. The matter is currently under discussion with the RBI, and entities have been advised to await further instructions before proceeding.
The circular has been issued under Section 12 of the IFSCA Act, 2019, and does not provide any interpretation of the RBI clarification. This move comes after the RBI updated its FAQs on March 25, which sparked concerns among funds and financial institutions operating in GIFT IFSC.
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Key Issues in the RBI FAQs
| Question | Description |
|---|---|
| 43 | Do entities operating in the International Financial Services Centre need to file annual FLA returns? |
| 44 | What happens if entities have received foreign investment or hold overseas assets? |
| 45 | How are subsidiaries set up in the IFSC by foreign entities treated for reporting purposes? |
The FAQs indicate that entities may need to file such returns if they have received foreign investment or hold overseas assets. Additionally, subsidiaries set up in the IFSC by foreign entities are to be treated as foreign direct investment for reporting purposes.
The Foreign Liabilities and Assets return is a mandatory annual filing with the RBI, capturing data on foreign investment in India as well as overseas assets held by Indian entities. This data is used for compiling India's external sector statistics.
Entities in the IFSC are generally treated as non-residents under foreign exchange regulations. The development has drawn attention from industry participants, with a group representing alternative investment fund executives writing to the Department of Economic Affairs seeking clarity on how such reporting requirements would apply within the IFSC framework.
The IFSCA's direction means entities will wait for further clarity before acting on the RBI FAQs. The regulator has indicated that discussions with the RBI are ongoing.
Investor Takeaway
Entities in GIFT City should await clarification before taking action on RBI FLA FAQs.
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