Custodian Business in GIFT City

IFSCA Official had introduced a comprehensive framework for custodians operating within the Gujarat International Finance Tec-City ( GIFT City  ) International Financial Services Centre (IFSC). This initiative aims to streamline processes, ensure compliance, and enhance investor protection. Below are the key aspects of this framework.

Key Definitions

• Custodial Services: Refers to the safekeeping of financial products and related services, including maintaining accounts, collecting benefits or rights, keeping clients informed of actions affecting their benefits, maintaining records, and issuing depository receipts in an IFSC.

• Custodian: A person or entity engaged in providing custodial services.

Permissible Clients

Custodians can serve:

1. Persons resident outside India.

2. Non-resident Indians (NRIs).

3. Non-individual residents in India eligible under FEMA for offshore investments.

4. Individual residents in India eligible under FEMA’s Liberalized Remittance Scheme.

Permissible Activities

1. Segregate custodian activities from other activities.

2. Implement mechanisms to review and monitor controls, systems, procedures, and safeguards.

3. Enter agreements with clients detailing custody circumstances.

4. Maintain internal controls to prevent manipulation of records.

5. Protect records from theft and natural hazards.

Structure of Eligible Entities

Entities eligible for registration include companies, LLPs, body corporates, partnership firms, and their existing unit branches.

Net Worth Requirement

• Indian Unit: USD 7 million

• Foreign Entities: As prescribed by the Authority

Fee Structure

• Application Fee: USD 1000

• Registration Fee: USD 3500

• Annual Fee: USD 3500 (from the next financial year post-approval)

Staff Requirements

A registered custodian must have:

• At least one Principal Officer with a professional or postgraduate degree in finance, law, accountancy, or economics and five years of experience in the securities market or related financial services.

• Sufficient staff for operations, with distribution activity employees holding at least a graduation degree.

Code of Conduct

1. Promptly distribute dividends, interest, or accruals received on behalf of clients.

2. Maintain continuous accountability for securities or financial products.

3. Ensure adequate infrastructure for satisfactory custodial services.

4. Safeguard continuity in record-keeping.

5. Facilitate tracing of securities or obtaining duplicate documents.

6. Cooperate with other custodial entities, depositories, and clearing organizations.

7. Maintain an arm’s length relationship with other businesses.

8. Exercise due diligence in the safekeeping and administration of client assets.

General Capital Market Intermediary Code of Conduct

1. Protect investors' interests and provide the best possible advice.

2. Observe high standards of integrity and fairness.

3. Exercise due diligence and professional judgment.

4. Avoid manipulative or deceptive transactions.

5. Handle investor inquiries and grievances timely and appropriately.

6. Maintain confidentiality of client information.

7. Disclose conflicts of interest and implement resolution mechanisms.

8. Avoid unfair competition and discrimination among clients.

9. Notify clients of changes in registration status or significant financial changes.

10. Ensure all employees meet qualification and conduct standards.

Tax Benefits

• 100% Tax Exemption: Business profits are fully exempt for 10 out of the first 15 years of operation.

• Minimum Alternate Tax (MAT): Reduced MAT rate of 9% for IFSC units.

For more details, visit: Tax Benefits GIFT IFSC.

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