The International Financial Services Centres Authority (IFSCA) has taken a significant regulatory step that should greatly influence the fund management ecosystem of the Gujarat International Finance Tec-City (GIFT) International Financial Services Centre (IFSC). GIFT City is India’s flagship international financial centre, providing a globally competitive platform for cross-border financial services within a separate regulatory framework. Following its 24th meeting, the IFSCA approved a change that will permit third-party fund management services popularly known as the platform play model.
This decision results from a consultation paper released by the IFSCA in August 2024, seeking stakeholder feedback on the proposed development. The intention is to foster growth and spur innovation in the IFSC’s fund management industry within a robust regulatory framework. More broadly, it seeks to position the IFSC as a globally competitive financial centre, aligning with international best practice.
The platform play model permits external fund managers (EFM), domestic as well as offshore, to manage schemes through the IFSC by partnering with existing fund management entities (FME) registered with the IFSCA. They will not need a physical presence in the IFSC. The current IFSCA (Fund Management) Regulations, 2025 (regulations), require a physical presence to operate schemes outside the IFSC. With this necessity removed under the platform play model, EFMs will be able to leverage the existing fund landscape at the IFSC, making it more cost-efficient and operationally scalable.
The platform play model will be introduced by amending the existing regulations. Although the text of the proposed amendment has not been revealed, the press release outlining its key requirements shows that it is meant to ensure regulatory oversight and accountability. A major provision is that the FME involved in the platform play model will be fully liable and responsible for all compliance requirements. Each scheme operating under the platform play model will have to appoint a dedicated principal officer. To ensure that only FMEs with sufficient risk appetite use the platform play model, FMEs offering the services to EFMs will have to be authorised by the IFSCA and must have an additional net worth of USD500,000. Such FMEs will also be subject to increased audit and disclosure obligations to strengthen their risk management.
Additional checks and balances proposed in the press release include mandating that only restricted schemes, as defined under the regulations, may operate under the platform play model. Such schemes will be subject to a fund-level cap of USD50 million. Restricted schemes may only be offered to accredited investors or investors investing at least USD150,000, with the aggregate number of investors being no more than 1,000. Although the funds cap on schemes is unusual in other jurisdictions and may deter larger investors, it suggests that the IFSCA is treating the platform play model as a sandboxed regulatory model. This meets the objective of providing flexibility while mitigating investor risk. The press release anticipates that clear eligibility standards will be established for EFMs.
The proposed amendment is appreciated and the introduction of the platform play model is a welcome initiative. It will bolster the IFSC’s position as a financial hub globally. However, the success of the platform play model will ultimately depend on the clarity of regulations. These should specifically deal with the discretion in FME and EFM commercial arrangements. The roles and responsibilities of FMEs and EFMs in such arrangements should be made clear, while there should be flexibility in structuring such arrangements to encourage FME participation. Regulations must set out whether FMEs participating in the platform play model will have to maintain their schemes or may only operate schemes on behalf of EFMs. It should be explained whether it is the FME that has to invest in the schemes or the EFM.
However, the initiative shows that the IFSCA is taking a maturer approach to regulation. It strikes a balance between fostering innovation and maintaining discipline. This augurs well for global fund managers seeking simplified market entry and for investors pursuing diversified, well-governed investment opportunities.
Bharucha & Partners – Justin M Bharucha, Mita Sood and Saher Gandhioke
