OVERVIEW:

• The Securities and Exchange Board of India (SEBI) has recently made a strategic move to invigorate the financial ecosystem within the International Financial Services Centres Authority (IFSCA) framework.

• Through a recently issued circular, SEBI has taken a two-pronged approach, simultaneously enabling Credit Rating Agencies (CRAs) and ESG Rating Providers (ERPs) to operate under IFSCA’s jurisdiction.

• IFSCA has been added to the list of financial sector regulators to enable CRAs and ERPs to undertake rating and ESG rating activities at GIFT City.

ABOUT CRAs AND ERPs:

• Credit Rating Agencies (CRAs): These entities play a crucial role in the financial landscape by assessing the creditworthiness of issuers of debt instruments. By allowing SEBI-registered CRAs to operate within the IFSC, SEBI aims to attract a wider pool of debt issuers and investors, ultimately contributing to a more vibrant and diverse financial marketplace within GIFT City.

• ESG Rating Providers (ERPs): Environmental, Social, and Governance (ESG) considerations are increasingly becoming a focal point for investors. By enabling ESG ratings within the IFSC, SEBI encourages a more holistic approach to financial decision-making, where not just financial performance, but also environmental and social responsibility are factored.

PRIORITIZING TRANSPARENCY AND EFFICIENCY:

• Prior to this circular, SEBI-registered CRAs and ERPs could only operate within the regulatory ambit of SEBI itself.

• This limited their ability to service entities functioning specifically within the IFSC framework.

• SEBI’s decision to recognize IFSCA as a financial sector regulator removes this barrier.

• CRAs and ERPs registered with SEBI can now seamlessly extend their services to the IFSC, fostering greater transparency and efficiency within the ecosystem.

SHIFTING THE OVERSIGHT LANDSCAPE:

• SEBI’s circular also entails a crucial shift in oversight responsibilities.

• While SEBI will continue to be the primary regulator for these entities overall, all credit ratings and ESG ratings conducted within the IFSC framework will be subject to IFSCA’s regulations and oversight.

• This includes handling complaints, enforcing relevant regulations, and managing information disclosures related to both CRA and ERP activities within the IFSC.

A CATALYST FOR GROWTH:

• Enhanced Credibility and Attractiveness: The presence of SEBI-registered CRAs and ERPs will enhance the credibility and attractiveness of the IFSC for a wider range of financial institutions and investors. This can lead to increased participation and activity within the IFSC.

• Streamlined Operations: Existing SEBI-registered CRAs and ERPs can readily extend their services to the IFSC framework, eliminating the need for additional registrations, thereby streamlining operations and reducing costs.

• Promoting ESG Integration: By enabling ERPs, SEBI actively promotes the integration of ESG considerations into financial activities conducted within the IFSC. This aligns with the growing global focus on sustainable finance and responsible investing.

CONCLUSION:

• SEBI’s circular represents a significant step forward for the IFSC.

• By expanding the range of financial services available and fostering a more transparent and ESG-focused ecosystem, this move is likely to propel the IFSC towards becoming a leading international financial hub.

• As the IFSC continues to evolve, it will be interesting to witness how CRAs, ERPs, and other financial institutions leverage this framework to create a robust and dynamic financial marketplace.