IFSCA Official had issued a comprehensive framework for the distribution of capital market products and services within GIFT City IFSC. This framework aims to streamline the process, ensure compliance, and enhance investor protection. Here, we outline the key aspects of the framework.
Definition of a Distributor
A distributor is defined as a person or entity that, for remuneration, engages with clients on behalf of an issuer or service provider to facilitate investments or subscriptions into capital market products or services.
Distribution Activities
Distributors are authorized to carry out the distribution of various capital market products and services. To operate as a registered distributor, an entity must obtain registration from the IFSCA. Registered distributors can collaborate with associate distributors for various permissible activities.
Simplified Registration Process
Entities such as IFSCA-licensed banking units, finance companies, broker-dealers, investment bankers, investment advisors, and corporate agents can benefit from a simplified registration process to become registered distributors.
Investment Through Omnibus Structures
Distributors, including banking units, finance companies, broker-dealers, and those with a net worth exceeding USD 150,000, are permitted to invest through omnibus structures in jurisdictions that allow such arrangements. This is contingent upon obtaining prior consent from clients, maintaining adequate records, and complying with KYC and AML/CFT norms.
Permissible Activities:
Distribution of capital market products and/or services to any client in IFSC or Foreign Jurisdiction
Distribution of capital market products and/or services to sophisticated investors in IFSC or Foreign Jurisdictions
Distribution of capital market products and/or services to any client in India
Distribution of capital market products and/or services to sophisticated investors in India
Any other activities as may be specified by the Authority.
Structure of Eligible Entities
The form of entities eligible for registration includes companies, LLPs, body corporates, partnership firms, and proprietorship firms.
Net Worth Requirement
Entities must have a minimum net worth of USD 50,000 to qualify for registration.
Staff Requirement
To become a registered distributor, an entity must designate at least one Principal Officer with the following qualifications:
Educational Qualification: A professional or post-graduate degree in relevant fields such as finance, law, accountancy, or economics from a recognized institution.
Experience: At least five years of experience in the securities market or related financial services.
Additionally, the entity must have sufficient staff for its operations, with each employee involved in distribution activities holding at least a graduation degree. Entities already registered with the Authority can use existing employees for distribution activities if they meet the eligibility criteria and there’s no conflict of interest. The Principal Officer is responsible for overseeing the distribution activities of the registered distributor.
Code of Conduct
Distributors must uphold principles of integrity, fairness, and diligence. They are expected to prioritize clients’ interests, avoid mis-selling, and ensure the suitability of products. Due diligence is required, especially for non-sophisticated investors, to assess their financial status and objectives. Distributors must be well-versed with relevant documents and enter into clear written agreements. Full disclosure of material information, including potential conflicts of interest, is mandatory. Sophisticated investors must acknowledge understanding the risks associated with the products.
Fees for Registration of Registered Distributors
The fee structure for registered distributors is as follows:
Application Fee: USD 750
Registration Fee: USD 7500
Annual Fee: USD 2000 From the Next Financial year in which Application is Approved.
Advertising Guidelines
The framework stipulates strict guidelines for advertising:
Accuracy and Clarity: Advertisements must be truthful and not misleading.
No False Statements: Avoid false claims, biases, and misleading projections.
No Misinterpretation: Ads must not be designed to mislead clients.
Appropriate Slogans: Slogans should be realistic and aligned with the product's nature.
Client Understanding: Avoid exploiting clients’ lack of knowledge with complex language.
Timely Information: Advertisements must be up-to-date and consistent with official documents.
Applicability
This framework is applicable to all Fund Management Entities (FMEs), Investment Advisers, Investment Bankers, Banking Units, Finance Companies, Broker-Dealers, Corporate Agents, and other distributors of capital market products and services operating in the GIFT International Financial Services Centers (IFSC).
Conclusion
The IFSCA’s framework for the distribution of capital market products and services establishes a robust regulatory environment aimed at fostering trust, ensuring transparency, and enhancing investor protection within GIFT City IFSC. By adhering to these guidelines, distributors can contribute to a more efficient and secure capital market ecosystem.
Disclaimer: This post is for general information only and not professional advice. We are not responsible for any loss or damage arising from its use. Consult professionals for specific advice.
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