The International Financial Services Centres Authority (IFSCA) ( ‘Authority’ ) published a Consultation Paper on Draft IFSCA (KYC Registration Agency) Regulations, 2024 (‘ KRA Regulations’ ) with the objective to seek comments and suggestions from the public and stakeholders at IFSC.
The salient features of the Consultation Paper are as follows:
Objectives –
The proposed KRA Regulations aim to establish a framework for registering and supervising KRAs in the IFSC, centralizing KYC records to streamline client onboarding and enhance Customer Due Diligence (‘ CDD ’) efficiency.
Background –
The IFSCA’s KYC and CDD guidelines permit entities at IFSCA to rely on third parties for CDD. However, relying on third parties can be challenging. To address this, a centralized platform for customer verification is proposed, which governs KYC data storage.
- Upon implementation, the key features of the KRA Regulations shall be as below- Proposed Key Definitions-
Upon implementation, the key features of the KRA Regulations shall be as below
Proposed Key Definitions –
- “Customer” or “Client” shall mean a person involved in a financial transaction or activity with a Regulated Entity;
“Customer” or “Client” shall mean a person involved in a financial transaction or activity with a Regulated Entity;
- “Inspecting Authority” shall mean one or more persons appointed by the Authority to undertake inspection of the books, accounts, records and documents of a KRA;
“Inspecting Authority” shall mean one or more persons appointed by the Authority to undertake inspection of the books, accounts, records and documents of a KRA;
- “Principal Officer” shall mean a designated employee of the KRA responsible for overall activities of the KRA;
“Principal Officer” shall mean a designated employee of the KRA responsible for overall activities of the KRA;
- “Regulated Entity” shall mean a unit/entity which has been granted license, recognition, registration or authorisation by the Authority. An entity seeking KRA registration in IFSC is proposed to submit the application form and fees as specified by the Authority. It shall be has presence in the IFSC and shall maintain a minimum net worth of USD 1 million at all times. Fit & Proper-
“Regulated Entity” shall mean a unit/entity which has been granted license, recognition, registration or authorisation by the Authority.
An entity seeking KRA registration in IFSC is proposed to submit the application form and fees as specified by the Authority. It shall be has presence in the IFSC and shall maintain a minimum net worth of USD 1 million at all times.
Fit & Proper-
- A person will be deemed fit and proper if they demonstrate fairness, integrity, and financial integrity.
A person will be deemed fit and proper if they demonstrate fairness, integrity, and financial integrity.
- Disqualifications are proposed to include convictions for moral turpitude or economic offences, pending recovery proceedings, insolvency, or being prohibited from accessing financial products.
Disqualifications are proposed to include convictions for moral turpitude or economic offences, pending recovery proceedings, insolvency, or being prohibited from accessing financial products.
- The person shall not be a willful defaulter, a fugitive economic offender, or subject to any other disqualification specified by the Authority.
The person shall not be a willful defaulter, a fugitive economic offender, or subject to any other disqualification specified by the Authority.
- If a person is declared unfit by a regulatory authority, they are proposed to be ineligible for registration for the specified period or five years, whichever is longer, after the regulations are enforced. Appointment of Key Personnel
If a person is declared unfit by a regulatory authority, they are proposed to be ineligible for registration for the specified period or five years, whichever is longer, after the regulations are enforced.
- A KRA will be required to appoint a Principal Officer based in the IFSC with a professional qualification in finance, law, or related fields, and at least 5 years of experience in financial markets, once the regulations come into force.
A KRA will be required to appoint a Principal Officer based in the IFSC with a professional qualification in finance, law, or related fields, and at least 5 years of experience in financial markets, once the regulations come into force.
- A Compliance Officer, based in the IFSC, will be designated to oversee compliance with the relevant laws and will be required to independently report any non-compliance to the Authority immediately.
A Compliance Officer, based in the IFSC, will be designated to oversee compliance with the relevant laws and will be required to independently report any non-compliance to the Authority immediately.
- A KRA will also need to maintain adequate manpower to support its business activities in the IFSC. Proposed Registration Requirements
A KRA will also need to maintain adequate manpower to support its business activities in the IFSC.
Proposed Registration Requirements
- Relevant experience of the applicant or Principal Officer.
Relevant experience of the applicant or Principal Officer.
- Adequate infrastructure and resources.
Adequate infrastructure and resources.
- Compliance with eligibility, net worth, and fund requirements.
Compliance with eligibility, net worth, and fund requirements.
- Financial creditworthiness.
Financial creditworthiness.
- Fit and proper status of the applicant and key personnel.
Fit and proper status of the applicant and key personnel.
- Any past certificate refusals and their reasons.
Any past certificate refusals and their reasons.
- Ongoing legal proceedings with the Authority. Grant of Registration
Ongoing legal proceedings with the Authority.
Grant of Registration
An entity will be eligible for KRA registration if it is a wholly owned subsidiary of a recognized stock exchange, depository, or another KRA in India, IFSC, or a foreign jurisdiction. If the registration cannot be granted, deficiencies will be communicated to the applicant, who will have 30 days to address them. Failure to rectify deficiencies may lead to refusal, with the applicant being given a chance to submit written explanations. The certificate of registration of a KRA is proposed to be perpetual unless suspended or cancelled by the Authority.
- A KRA will be required to maintain and preserve key books of accounts, records, and documents in electronic form for at least 8 years.
- A KRA will be required to maintain a business continuity plan that will outline the procedures for emergencies or significant disruptions.
- A KRA will be required to implement a robust cyber security and cyber resilience framework, in line with the requirements specified by the Authority.
- A KRA will need to establish a comprehensive risk management system and ensure adequate internal procedures and controls.
- A KRA will be required to conduct an annual audit for compliance with these regulations, carried out by a qualified auditor from recognized professional bodies or an authorized auditor in a foreign jurisdiction.
- Proposed Functions and obligations of the KRA
- Coordinating with other KRAs to prepare operating instructions and ensure electronic connectivity.
Coordinating with other KRAs to prepare operating instructions and ensure electronic connectivity.
- Safeguarding and retrieving KYC documents and sharing them with authorities as required.
Safeguarding and retrieving KYC documents and sharing them with authorities as required.
- Validating and updating KYC records, ensuring data integrity and security.
Validating and updating KYC records, ensuring data integrity and security.
- Conducting regular audits, preventing unauthorized access, and ensuring compliance with data protection laws.
Conducting regular audits, preventing unauthorized access, and ensuring compliance with data protection laws.
- Entering agreements with regulated entities, sending client confirmation letters, and maintaining audit trails for KYC data changes. Proposed Functions and obligations of a Regulated Entity
Entering agreements with regulated entities, sending client confirmation letters, and maintaining audit trails for KYC data changes.
- Performing initial KYC and uploading KYC details with proper authentication to the KRA system, retaining physical documents.
Performing initial KYC and uploading KYC details with proper authentication to the KRA system, retaining physical documents.
- Verifying and downloading client details from the KRA system when a client approaches another Regulated Entity, updating the information when necessary.
Verifying and downloading client details from the KRA system when a client approaches another Regulated Entity, updating the information when necessary.
- Ensuring KYC data is used only for its intended purpose, without sharing it for commercial gain.
Ensuring KYC data is used only for its intended purpose, without sharing it for commercial gain.
- Taking ultimate responsibility for client KYC, including enhanced measures based on the client’s risk profile.
Taking ultimate responsibility for client KYC, including enhanced measures based on the client’s risk profile.
- Integrating systems with the KRA to ensure seamless KYC data exchange. Inspecting Authority
Integrating systems with the KRA to ensure seamless KYC data exchange.
Upon enforcement of these regulations, the Authority may appoint Inspecting Authorities to inspect a KRA’s books and records to ensure:
- Compliance with regulations and internal controls.
Compliance with regulations and internal controls.
- Proper maintenance of documents.
Proper maintenance of documents.
- The KRA remains fit and eligible.
The KRA remains fit and eligible.
- Investigation of complaints and concerns.
Investigation of complaints and concerns.
The Inspecting Authority will notify the KRA before inspection unless urgent action is required in the interest of investors.
Inspection by Third Parties
Upon enforcement of these regulations, the Authority may appoint a professional to inspect a KRA’s books, records, systems, and procedures. The professional will have the same powers as an Inspecting Authority, and the KRA and its employees will be required to comply with the inspection requirements. The Authority may recover the costs of the inspection from the KRA.
- Upon enforcement of these regulations, KRA will be required to abide by the Code of Conduct as specified in Schedule I of the KRA Regulations.
A copy of the Consultation Paper is attached herewith for your ready reference.
Source category: IFSC Insurance Office
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