GIFT City Seeks Regulatory Changes for Family Offices
Introduction
Family offices, used by affluent individuals to safeguard and grow their wealth overseas, have found support from the International Financial Services Centres Authority (IFSCA) in GIFT City. Recognizing a larger concern of unregulated outflows of capital, the IFSCA has approached the Ministry of Finance and Reserve Bank of India (RBI) to explore regulatory changes that could facilitate the establishment of family offices in GIFT City. As the only financial services center in India, GIFT City has the potential to become a hub for such offices.
Regulatory Challenges for Family Offices in GIFT City
While family offices are permitted in theory, there are regulatory obstacles hindering their formation in GIFT City. The confusion stems from the interpretation of the Overseas Investment (OI) Regulations that were issued a year ago. There are concerns among regulators that allowing family offices in GIFT City could lead to circumvention of restrictions on annual overseas investments by residents, potentially enabling them to transfer funds beyond the acceptable limits defined by the government and regulatory bodies.
Proposed Safeguards and Dos and Don’ts for Family Offices
To address these concerns, experts suggest implementing guardrails and regulatory dos and don’ts for family offices in GIFT City. Certain conditions and restrictions could be imposed to govern the type and amount of offshore investments made by these family vehicles. For instance, there might be a need for clarification on the classification of investments in family investment funds (FIFs) as portfolio investments. Additionally, minimum investment requirements in GIFT City and additional limits for investments in other overseas jurisdictions may be imposed to ensure adherence to regulations.
Beneficial Aspects of Family Offices’ Engagement with GIFT City
Engaging family offices within GIFT City can offer significant advantages. The Foreign Exchange Management Act (FEMA) Overseas Investment (OI) Regulations issued in August 2022 provide an avenue for Family Offices to invest in IFSC investment vehicles, allowing them to allocate up to 50% of their net worth through the OPI (Other Permissible Investment) route. This provision grants High Net Worth Individuals (HNIs) the opportunity to diversify their investment portfolios across different securities and geographies while benefiting from the Indian financial ecosystem.
Conclusion
The collaboration between GIFT City and regulatory bodies, including the Ministry of Finance and RBI, aims to address the regulatory challenges faced by family offices. By considering necessary changes and implementing appropriate safeguards, GIFT City can establish itself as an appealing destination for family offices. This would enable affluent individuals to effectively manage their wealth while adhering to the stipulated regulations, fostering growth and development within GIFT City’s financial ecosystem.
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