Regulatory Framework for IFSC Banking Units in Global Payment Ecosystems

OVERVIEW

• This circular is issued under the authority granted by Section 18 of the Payment and Settlement Systems Act, 2007 and Section 13 of the IFSCA Act, 2019.
• Together, these provisions empower the International Financial Services Centres Authority (IFSCA) to regulate International Payment Systems, issue directions to system providers and participants, and oversee the conduct of business related to cross-border and domestic payment transactions involving the IFSC.
• This legal framework ensures that IFSCA can effectively guide and supervise participation of IFSC Banking Units (IBUs) in global payment networks.

New Flexibilities for IBU

• The circular introduces key operational flexibilities for IFSC Banking Units (IBUs) regarding their participation in International Payment Systems.
• IBUs are now permitted to join such systems to conduct transactions with banks or financial institutions located outside the IFSC without requiring prior approval from the IFSCA.
• However, if an international payment system facilitates transactions between IBUs themselves, thereby affecting domestic flows within the IFSC, it will require prior authorisation from the IFSCA under applicable provisions.
• Once this condition is satisfied, IBUs may then engage in such domestic transactions through the international system without seeking further approval.

Mandatory Compliance for All IBU

• All IFSC Banking Units (IBUs) are required to review their participation in International Payment Systems in light of the new policy framework.
• Each IBU must submit a compliance confirmation to the IFSCA within 30 days from the date of the circular, i.e., by June 20, 2025.
• Additionally, IBUs must provide a complete list of all International Payment Systems in which they were participants as of March 31, 2025, and share the same with the Department of Banking Supervision.

Why This Matters for IBU and Stakeholders

• This circular offers much-needed clarity and operational freedom to IFSC Banking Units by enabling faster cross-border settlements without regulatory delays, facilitating greater participation in global financial networks, and reducing compliance friction for eligible domestic (IFSC) transactions.
• It also promotes transparency and regulatory alignment through mandated reporting.
• By simplifying access to International Payment Systems, the IFSCA strengthens GIFT City’s emergence as a globally competitive financial jurisdiction and supports the broader goal of making India a hub for international finance.

CONCLUSION

• The circular clarifies that no prior approval is required for IBUs to make or receive payments involving banks or financial institutions outside the IFSC.
• However, if International Payment Systems are used for transactions between IBUs, thereby affecting domestic IFSC transactions, authorisation from the IFSCA is mandatory.
• All IBUs must ensure compliance submission by June 20, 2025, and are expected to keep the IFSCA informed about their involvement in such systems.