The International Financial Services Centres Authority regulates financial activities within International Financial Services Centres in India, playing a vital role. In February 2024, the IFSCA issued the IFSCA (Payment Services) Regulations 2024 to establish an authorizing and regulatory framework for Payment Service Providers operating within IFSCs. This article addresses frequently asked questions to provide clarification on the nuances of these regulations.
The regulations outline several methods for facilitating payments, including transaction accounts, payment instruments, and channels. Transaction accounts allow initiation and receipt of funds through mediums like bank accounts or digital wallets. Payment instruments are used to initiate payments through cards or other mechanisms, whether debit, credit, or otherwise. Channels refer to the systems enabling the transfer of monies between parties, at points of sale, online gateways, and other avenues.
Any entity wanting to supply payment services within the IFSC’s jurisdiction must obtain approval as a Payment Service Provider from the regulatory body, the IFSCA. This licensing necessity applies broadly, covering traditional banks alongside newer non bank competitors, as well as other organizations involved in payment-related operations. Pursuing activities in this sphere without authorization could leave operations exposed to compliance issues.
The regulations categorize PSPs based on the services offered: payment transaction providers manage accounts, transfers, and initiate payments while payment instrument issuers or acquirers handle cards or digital tokens. Payment clearing and settlement providers facilitate clearing and settling transactions between parties.
To qualify, one must be a legally registered Indian entity with a sound financial position, adequate capital, robust risk management framework, experienced competent management and staff, and comply with IFSCA's anti-money laundering and combating terrorism financing regulations. Adhering to these criteria allows eligible organizations access to the growing digital payments landscape in India by obtaining a license to legally operate as a licensed payments service provider.
The IFSCA provides an online portal for submitting applications for authorization. The application process involves submitting various documents, paying applicable fees, and undergoing due diligence by the IFSCA.
Once permitted, Payment Service Providers assume ongoing obligations under the law, including maintaining adequate net reserves, submitting routine activity reports to the IFSCA, adhering to Know Your Customer and Anti-Money Laundering/Combating the Financing of Terrorism rules, and practicing prudent risk management.
1. Operating within the IFSCA framework offers certain advantages such as accessibility to a vast international pool of investors and enterprises in development, a streamlined authorization process with regulatory clarity, a flexible environment encouraging innovation, and potential tax relief on selected transactions.
2. While permission opens payment gates to growth, compliance remains key. PSPs must satisfy minimum capital reserves, submit periodic performance updates to the regulator, employ due diligence to Know Your Customer norms as well as Anti-Money Laundering and Counter-Terrorist Financing mandates, and implement risk management controls.
3. The IFSCA overseas PSP activity under a framework structuring benefits like contact with a burgeoning worldwide body of clients and ventures, a streamlined licensing procedure with legal lucidity, an adaptable atmosphere energizing imaginative arrangements, and conceivable assessment breaks on specific exchanges.
This brief communication is only intended to provide context, not legal counsel. Please contact a qualified adviser for guidance specific to your circumstances under the IFSCA (Payment Services) Regulations, 2024.
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