Dhananath Fernando  00:11
Hello, hello, everybody! You're tuned in with Advocata Studio, and as you know, we bring special guests to our studio to discuss about things that matters on policy, on economy, on finance, and we are deeply honoured to have mr. Pradeep Ramakrishnan, Executive Director of the International Financial Services Centres Authority. Pradeep, thank you very much. Thank you, thank you for joining Advocata on your short visit to Colombo. Welcome to welcome to Colombo. First of all, just wanted to understand. I think Sri Lanka has some experience about these financial cities. I mean, some in the sense we have discussed about poetry, but not many people are aware of what's like the nature of a financial city. And you represent the regulatory authority for the financial city, could you first give a little bit of colour on like what is happening in India with these financial cities, and what is your role and what's the role of your institution to get the conversation going?

Speaker 1  01:14
Thanks, thank you, thank you for having me here. I'll just want to go back a little bit in history so that I can actually explain this better, right? So the so the the study of the Indian economy is largely in two parts, pre-liberalization and post-liberalization. So we had freedom in 1947, just like Sri Lanka had it in a year later. So we have both have a colonial past. So as far as India was concerned, from 1947 to 1940, 1991, so the the whatever the founding fathers of the you know independence and the independent India were concerned, so they brought in a concept of a mixed economy, right? Largely the government would be in control of a lot of things, and rules and regulations were different. It was more of what it was actually called as a licence raj, you know, so licences were had to be doled out. You have to take out licences for a lot of things, and the government would determine. So it was more of a control in in a way economy. But at that point in time, whatever it was at that point in time, because of wave of waves of socialism sweeping around the world, because we are always, you know, like we we are influenced by a lot of things that happen in the world, so we were following that until 1991. So on 1991, we had some issues with our economy because, though of course India has been a nation which has never defaulted on its dues, we were finding it difficult to get a next tranche of loan from the IMF, and so much so that we also had to, you know, ship our gold to actually, you know, show them that we. That was in Switzerland, right? Yeah, yeah, yeah. Gold and yes, show that. So because our forex reserves had plummeted to almost 3, $4 billion at that point in time, and so that was the time when the then government decided that okay now we will have to change the way we do business government so they they decided that okay we have to change the way we do business so we moved away from that type of economy to a concept of LPG which we call as liberalisation privatisation and globalisation so we changed our rules we regulations we brought in new regulators like the Securities and Exchange Board of India for securities markets. We changed the way rules are done. Then we moved away from a merit-based regulation to disclosure-based regulation. That was a fundamental shift, right? So there was delicensing on the cards. So except railway and railways and defence, almost all sectors were sort of completely like sort of delicence, so a lot of foreign capital started flowing in because India is such a huge population, and you have a lot of potential business. So you had people from around the world coming up and setting up shop. So this was something which started in 1991, and we started feeling the benefits of this in a few years to come, so LPG impact. So towards like you know probably the late 90s and the early 90s, so people started becoming a little more wealthier. We started pulling people out of poverty. A lot of things started changing, and then we were like, okay, now we can dream a little lot, lot more. Like so, it gives you confidence. So in 2007, an eminent personality by name, mr. Percy Mistry, he was interested with that task of bringing something like Mumbai as an international finance centre. Right. So he brought out a paper about that, and in a way, people actually say that it's good that it did not take off immediately because of the traffic jams in Mumbai, so anyway, the the present prime minister of our nation, mr. Narendra Modi, who was the chief minister of Gujarat at that time, he was a visionary and he continues to be one. And so he was like, why can't we sort of you know whatever was there in the paper, why can't we sort of adopt it here, right? Because he. He had gone to Singapore, so he found a lot of Indians there. So now, one in every six persons on the planet is an Indian, right?

Speaker 1  05:05
So what was once which was derisively caused as the you know called as the Hindu rate of growth is actually our popular, our our our bane, our boon today, right? So because we have people from around the world, I mean Indians which who are gone around the world set up businesses and all that. So the then he's found that a lot of people who are doing business in Dubai are Indians. People are doing in business in Singapore are Indians, right? So then the next question as to why are these people not doing business in India, right? What have they got? Of course, there are people doing business in India, but they are also doing business there, right? Why can't they also do business in India, if not only here? So then he got the idea. He got the answer. The idea was the answer was he a lot of regulations which are intrinsic to a nation they are like they are fit for that purpose right you bring in because of the mix investor mix subscriber mix regulator mix also policy mix so there needs to be a fundamental shift from that line of thought so because if you are going to set up an international finance centre today. If I ask you, okay, can you please give me the names of three international finance centres? So you will immediately start telling me about a Singapore or a Hong Kong or a London, right? And why do these three names come to your mind immediately? It is because you know that it is easy for you to go and tap money. You can use to go to go to this place and get money. You can actually go to these places, at any point in time, you can come out. So there are certain things which it gives. Essentially, it's about the ease of doing business, cost of compliance, cost of capital. These are the factors which sort of pay into this. So then he came back and he said that okay, why we should actually think of something like that. And that is how the idea of the IFSC was born. So the first IFSC in India is the Gujarat International Finance Tech City or the Gift City, as how it has become very popular, and that is how the concept was born. So, if you look at the IFSC now, if I can say a little more. So, essentially, the IFSC is a place where there is a unified regulator looking after a lot of issues like banking. There is a banking vertical, securities market vertical, we have an insurance vertical, we have a pension vertical. We also have very interesting lines like you know we have a like India is the largest laser of planes in the world. So we have an aircraft vertical, aircraft leasing vertical, ship leasing vertical. We even have four four foreign universities in this place. Right, right. So it's essentially about creating a place with a lot of substance and sort of metamorphizing into an international finance centre, so that it can also earn money for because India is a capital deficient country. It continues, and we also have a lot of promises that we have made to ourselves and to the world, like the Sustainable Development Goals, and also issues like you know sustainable capital. We have got a zero net zero target for 2070. So there are so much money we need. Almost 10 trillion is needed only for that, as they say. So towards all this, then this international finance centre will actually help us. And at some point in time, we also want to sort of give it back to the world. Got

Dhananath Fernando  07:55
it, Pradeep. Just a fundamental question. So this international financial city, the gift in Gujarat. Does it also fall under like a special economic zone, like this Gen Z, or like a you know, is it the same or is there a difference?

Speaker 1  08:09
Interestingly, our this is the only special economic zone that is dedicated only for financial services. Right. Generally, all other special economic zones in the country are dedicated towards manufacturing largely, but this is the only one which is dedicated only for financial services. So it is an SEC.

Dhananath Fernando  08:25
Excellent. And coming back, so when why you you brought the idea of I mean the the the example of Mumbai. So was it because of the vision of Prime Minister Modi then as the Chief Minister? Was it that actually drove? And is there a trend that because when you say India, the commercial city like the Mumbai or Delhi probably may have made more sense for for an outsider. But I mean, what really made it happen in in Gujarat?

Speaker 1  08:55
So it's it's see, I would say that it is a combination of a lot of things. See, and it is important that there is a balanced regional development in any nation. Right, it should not be sort of concentrated in one place. Like, thankfully, we have the talent, we have the population with talent, we have the enterprise, and we have the entrepreneurial skills, which is also present in all states. So, of course, one should always salute the will of the person who actually takes the first step. Normally, it's always as they say. It's very tough to make your first million. Everyone is just waiting and watching so that who makes the first step takes the first step. And once it's successful, a lot of others also. So he was bold enough to take the first step.

Dhananath Fernando  09:33
Got it. So this was seems to be like a bold idea at the beginning because you have been you have a large population, and since you mentioned because you had a mixed system that you had the state control system and then you were in the transition of slowly your LPG liberalising privatisation and also globalisation. So what were the what was the recipe that. This took off. Like, what were the ingredients that you assembled? Because I am taking it for the Sri Lankan audience to get apparel. Because we had the port city, we had the port city, which the China had to invest on reclaiming the land, and then the regulatory setup is not yet done, and we had to go back and forth on setting up the regulatory framework. So, what made it happen, and what was the timeline? If you could give a colour on, like you know, from the initial step to to really take off the gift city before coming to your regulatory function, what was like the timeline, and what basically happened right?

Speaker 1  10:34
So that's actually a good question. And see, when see, as I said, we after liberalisation, we had a lot of. There are some regulators who were existing in India before liberalisation. There were newer ones which came after liberalisation. Also, we also brought an insolvency law and insolvent insolvency regulator. So all those things were working well here. So when the idea germinated in 2012, that was when the foundation stone was laid. It took another three or four years, and because when the when the idea and the regulations started getting being made with the local regulators, the local regulators were the ones who were initially having oversight over this city. So then we found that I mean it was felt by the regulators also because it's difficult to have two different sets of lines of thought, so you have been used to regulating a set of people as you know a set of and and there is also need to have constant engagement, right? So there is need for time. There needs to be dedicated set of people who have to be regulators in a place. So it is important that you need separate regulations. You don't just need carveouts of existing regulations. It will not work. It may work for some time, but not continuously, and maybe not all the time. So a need was felt to set up a regulator because there is also a need for coordination with the government. If you have to bring an incentive, if you have to bring a rule or regulation, which there needs to be a departure, then there is someone who has to go and you know sort of speak to the government, tell them as to why there needs to be a change. There needs to be a lobbying lobby for want of a better word. I'm using it. So, like, sort of you sort of you know advocate rather with the taxman right on certain things. So you need a regulator who's dedicated for this place, right? So with that, the idea of an international financial services centres authority regulator took shape, so 2019 was when they decided that okay we need to bring in an act. So a new act was brought in and a new regulator was created who was a unified regulator for this for this place. So that happened in 2020 October. That was when a unified regulator was created. Now now this the job of this regulator was to create something for this place, like for example, today the gift city is the international space of the IFSC. The gift city IFSC is around 300 acres, right? So largely this is the main thing. So there is also a domestic tariff area where the these tax exemptions don't apply, but there are other IT ITES companies which are also doing business there. But now, as comes to the IFSC, then we have a unified regulator for a banking, b securities market, c insurance, d pension, and e aircraft leasing, ship leasing. We also have tech fin and fintech centres. We also have foreign universities, and we also have sandboxes, which actually create a lot of things, and we have also created something called you know global this GCCs and GICs also can sort of you know set up shop there, so to serve international thing. One thing which we are very particular is that we are not competing with India, so Indian regulators and Indian business will be separate. What we will do, business that business will be separate. So no business can technically take place in India. It has to be outside. And the transactions which happen here happen only in foreign currency. There are some 16 recognised foreign currencies as of now. So business can happen only in that currency. Does not happen in Indian currency. Essentially, that way you also earn foreign currency, and you also make those foreign business houses set up shop very seamlessly.

Dhananath Fernando  14:07
Got it. Now, just a quick question. Now, when you set up that regulatory coming coming to your forte, so when you set up that regulatory authority, as you said, like you have to work with the existing regulators, but you have been very clear that this is this this international financial city has to serve for international purposes, and you are not competing with the Indian businesses. So who championed this? Because sometimes what happens is in I'm using the Sri Lankan examples because when you try to have a separate regulatory authority, which you are also coordinating with the existing regulatory authority, there is always friction and going back and forth. So who who champion and getting this together in terms of the regulatory? See, I

Speaker 1  14:47
should really be thankful to the local Indian authorities, right? Because they have been quite. They first of all see the conflict etc. arises when there is no understanding of

Dhananath Fernando  14:58
right

Speaker 1  14:58
what you are doing and what the other. Business doing when those lines are very clearly demarcated, then I am going to help you in setting it up. So all our regulators, domestic regulators, have actually been instrumental in helping us set up this place. Right. So so when we said that okay, a business will be in foreign currency, b the the work will be done only in the IFSC, c we are doing only non-India business, then all these things are very clear green lights, right? So then, when we go to them and say that okay, this is a regulation which is there, then maybe we need a carve out. Then they are able to understand and connect better. So, like for example, direct listing. So SEBI has got certain rules for direct listing for listed companies. Now, these listed companies were also to list in the IFSC. SEBI has said that okay, these things they have to follow, and these other things of yours, they will follow. So that law is expected very shortly. So we have been able to do it. Of course, that requires meetings, parleying, and all that. Those things have happened, and they continue to happen. But we have had a lot of good learnings also, because many times they have also advised us on what exactly we are. You know, so we are actually integrated for all practical purposes. We are also India, right? So we are at another regulator. It is just that our woe extends to this IFSC.

Dhananath Fernando  16:06
Correct. And now, from from from what I understood and from what I read, so in this gift city, which is the only city as at now, which is the the Gujarat International Tech City, which is the international financial city in India, and you are the main regulatory authority, and you have unified the entire regulation under the city. So that's as you said, securities and exchange, and the banks and insurance. Everything comes under you. So how do you function? Like you know, because these are all vast areas in Sri Lanka and in India, you have the central bank or Reserve Bank of India who regulates the banking sector, and there's a separate regulator. So, how do you basically establish to basically as a as to regulate as a unified regulator? How does it work?

Speaker 1  16:52
So, essentially, the IFSC largely initially, and maybe even now in a in a way, is built with people from these regulators.

Dhananath Fernando  17:00
Yes. Okay.

Speaker 1  17:00
So now, like for example, I was with Securities and Exchange Board of India for 22 years. Right. Right. So I bring with me the securities market experience. Similarly, there are people from the RBI, there are people from IRD, APFRD. So these are all people who have worked there. They know what exactly their secure their their sector is, what it does. So they come with that experience. But they know once they come here, they have to draft a law which is not what they have done there. So, see, one of the most important parts of a person growing is they have to unlearn and relearn. Like, see, it's it's very easy to learn. I mean, it's tough to learn, but it's tougher to unlearn and relearn, right? So that is something which we have done because now, say for example, I have drafted rules and regulations for India domestic, right? Listing rules, listing regulations, pre, post debt, equity. So when I come here, like for example, there is one regulation for debt, there is one regulation for equity, there is one regulation for post issue, and there are two chapters there. One separate chapter for equity, certain chapters for debt. Now, when I come here, I have to form one integrated regulation for equity, debt, pre and post listing, right? So I have done something. I will take some thread from that. Secondly, I look at how internationally things are drafted, right? What would make a foreign investor to invest in a bond in the IFSC, what would an issuer want out of this place? A cost of capital, B cost of compliance, C easy ingress, egress. Looking at A then ease of doing business, right? So it is important to have regulations that are fit for purpose. So what we did was we have crafted 30 regulations of our own. So we don't have regulations from India domestic that are getting followed here. The job of this regulator itself was to craft regulations which are fit for purpose. So, with the advice of a lot of you know think tanks and policymakers and the domestic regulators, we were able to craft regulations which were you know suited for an international city, like for example, if you go to Hong Kong, they have a thing law for bonds, and it very particularly like sort of says that it does not apply to an informed investor, like a professional investor rather. So we have brought in rules and regulations which are similarly like crafted for international investors. International, however, one thing which is very important is that for any international finance city, it should not become a letter pad jurisdiction. Right? You don't want people to just come there and just set up something, and then for the purpose of tax benefits or whatever, and then no work happens there. You don't should not have a place which is used for booking of income. So we, as a regulator are very very particular in ensuring that there is substance. So we have mandated that there should be a principal officer, there should be a compliance officer, there should be key managerial personnel. You need to have office space. You need to have you know infrastructure and all those things there. So if I'm going to say that okay, this bank. Exists works in Gib City. You will actually go there and find the bank doing it. There will be people there, transactions being happening. If I say that there is a fund, similarly they will be there. People. So, so that is how jurisdiction actually develops, right? Otherwise, then you will not set out for the purpose. The vision was that, and you have to follow certain steps to achieve that vision. So that is what we have tried to do.

Dhananath Fernando  20:24
Got it. Just just a side question because Sri Lanka. I'm just I'm because my brain works like okay we tried with port city and we are still like you know trying to get it done. So how is the financing happens for the regulatory agency because in in Sri Lanka every time when you try to set up a regulatory agency, there is some salary circular that you cannot exceed. So, so how does it structure and how the financing takes place? Because from what you said to for you to draft like 30 new regulation, that means a lot of competent people have to be there. So, how the financing takes place, or is the salary scale is it par with like the Indian? I mean, how does it work basically? Yeah, yeah. So

Speaker 1  21:02
our salary scale is on par with all the other regulators in India. Right. So we have a similar scale, but it is also important that regulators are able to self-finance and become self-sufficient at some point in time. Right. So of course, whenever it, whenever any such regulatory authority started charged with a small grant from the government. Right. Right. After a point in time, we also set up different rules and regulations to start earning our own money. So that is where we are also right. Got it.

Dhananath Fernando  21:26
Got it. Now coming back to the tax incentives, because in Sri Lanka, one of the main selling points on these financial cities have been tax incentives. And what is the strategy of gift, and how do you see as a regulator on these tax incentives and explain about explain like what's how the structure works what's the policy how do you evaluate and and and details about it.

Speaker 1  21:52
So for any entity to do business in the gift, so there are two things. One is if you want to raise money out of gift, you need not be present in the IFSC, right? So you can be in any part of the world and raise a bond or an equity issue from the gift city, or you can even take loans from staying in different parts of the world. You need not be present in the IFSC, but if you want to do business in the IFSC, you have to be present in the FSC. Now there are different registrations that we grant, either like for example as a merchant banker, or a bank, or a financial institution, or a PSP payment services provider, or maybe as a foreign university, so there are various licences that the IFSCA grants for you to set up business there. So you also need to follow certain ACC rules so that you can also you become eligible for the tax benefit. The tax benefit presently for income tax is the 10 out of the first 15 years of your existence is your tax benefit, but tax incentives are only sweetness, right? So they are just they cannot be the main dish, right? So towards that it is important. Like again I said, you need to have substance in the work, you need to have substance in people, substance in things like infrastructure. So that is what we are trying to do. So while there are certain other exemptions which the local government also gives for PF and other things, those things are just temporary. So we believe over a period of time, and this is a facet of a lot of international jurisdictions. Also, if you go to Singapore, if you go to Hong Kong, there are certain incentives which the local authority gives the persons who are coming from other countries to set up business there, but there are certain caveats. So we also have a caveat that a you need to set up business and you need to have substance, and business should take you know happen there. So this is how we function as regulator. The policy on tax, of course, is something by the government and the income tax department. So that is how they it works here.

Dhananath Fernando  23:42
Got it. So and also want to understand when it comes to the the tax incentives, is it because how do you what's the regulation on the existing companies in India moving to the financial centre because what we experienced here was you had the financial city with tax exemption. So the existing companies, which is on the other side of the road, basically slowly moving to the financial city with a new registration or with I mean how it happens in in gift.

Speaker 1  24:17
It's a very good question. So that is why we very clearly mentioned that you will not do any India business in the IFSC, so we don't. We are not a competitor to IFS. We or to India. We are India only. We are also, for all practical purposes, an Indian regulator. We are here to complement what the domestic regulators do. So the jurisdiction of domestic regulators will be domestic India. The jurisdiction of India of IFSC will be the IFSC and international jurisdictions. So that way, then it was very clearly demarcated. Secondly, so you people just don't so you can't just can't move a business. So then that completely rules out you moving here, unless you have international business. Then you will not move here at all. Yeah. So we have sort of given that that. That those lines are very clear, right? So you you don't do India business here, so which means that people will not move here unless they have international business or they have business in the FSC itself.

Dhananath Fernando  25:10
Got it. Next, I would like to come on the sustainable financing because sometimes the complaint has been okay when you set up these international financial cities. It's all about like money laundering to terrorist financing, and you know at the same time you mentioned that India wants to really give back and to move towards the sustainable financing environment future of governance environment. You know bring that. So how have you structured, and what is the role of the regulator on attracting the right financing schemes?

Speaker 1  25:44
So I'll just separate my answers in two two here. First is I'll talk about the general financing ecosystem, and then I'll talk about sustainable finance. Now the general financing ecosystem, we have a regulation for banks, we have a regulation for financial institutions. Now banks and financial institutions can sort of lend, and that is how money comes. And in case of bonds, in case of other companies, you have bonds, you have equity, you also have short-term instruments like commercial paper and certificates of deposit deposit through which you can raise money. Now, when it comes to all of these things, there is this money that money that is money is involved, and the colour of money is important. So we are an FATF compliant jurisdiction. So the rules which are applicable to India, we have a PMLA Act. All those rules we have AML CFT guidelines, and they have to be complied with, which is why the FATF has actually ranked us high on the radar, so on that front, on KYC, on AML, and there is no letup, so you have to comply with the UBO identification till the last mile identification is required. So you need to ensure ensure that the documents are also kept in the IFSC. So which means that then we are able to probably even be one step ahead of a lot of other jurisdictions which receive money from different parts of the world, so we are absolutely clear about that colour of money. There is no letup, as far as that is concerned. Now, when it comes to sustainable finance, no sustainable finance, no IFSCA wants the IFSC to be a climate finance hub. That's a very lofty vision, right? So towards that, what what is it that we have done? So one thing what we have done is that we are probably the only jurisdiction in the world to mandate banks to lend at least 5% of their total lending for sustainable finance. So that has led to almost you know six to 7 billion of $7 billion worth of money being lent, you know, for sustainable finance purposes by almost 30 odd banks, which are there in the IFSC. Now, secondly, we also have brought in a concept of sustainable bonds. Now, sustainable bonds can be green bonds. They can be sustainable bonds. They can be sustainable linked bonds or social bonds. So, money has actually been raised in all these categories in the gift city by almost through almost 150 odd issues, almost 80 billion dollars, 70, I think 75 billion dollars being raised in bonds. Now, what is it that we have done differently as far as ESG bonds are concerned? One, we have said that we accept all the international taxonomies, like we have India itself has listed company taxonomy, then we have the SMA taxonomy. We have a taxonomy from ASEAN. We also have a taxonomy from ICMA, International Capital Markets Association. Now, all these things have you have a choice of adopting anything. For example, if you are an investor from Europe, you would be comfortable with an SMA taxonomy. So, if an if an issuer sort of comes out with a bond issue where you want to invest, you say that are you following the SMA taxonomy? Okay, then I am comfortable in investing. So that way, it has helped the the the sustainable finance ecosystem to also grow. But again, it is very important that when it comes to green investing, you know that a lot of concepts like greenium etc are actually taking a walk. But what is important for green investing is pre-issue and post-issue disclosures and certification, independent certification and assurance. So these things like independent certification, third-party valuation, all these things are mandatory. Pre-issue disclosures, post-issue disclosures, all these things are separately important for green green finance. The last part of the puzzle is the something called ESG funds now the fund industry is quite a big industry in the IFSC. It's possibly one of the most most vibrant. So we have got almost 140, 145 odd fund managers which have set up who have set up almost 220 to 30 funds in the IFSC. So we also have said that they can also launch ESG funds. So a few people have launched ESG funds.

Speaker 1  29:44
We have also said that in case you launch an ESG fund, the entire fee is exempt for the top 10 first 10 funds who are coming with ESG funds. We are giving them. That's a small sweetener that we want to give because we want to encourage ESG investing. Right. As I said, India needs a lot of money. For ESG related purposes, so this could be a big funnel. The IFSC can be a big funnel for funnelling money into India for that.

Dhananath Fernando  30:07
Correct. And just to pick your brain on some recommendations that we can learn from your experience, I mean, if you were to advise us with your experience with IFSCA and also working at the Securities Commission, how do you recommend to get these off? Because one convers let's be very honest. Like one conversation that came out was okay for Sri Lanka, because for for a financial hub to prosper, there has to be a main market, and that potentially could have been India, and then now India is coming up with your own financial centres, and given the geographical placement that we have that advantage. But at the same time, we were quite slow down. I mean, slow to get the regulatory framework right. I mean, we have reclaimed this land for a long time, and now there's a capex that has incurred, and we are slow to recover. So, if you were to advise us on doing three things right, what would you advise, or like, what are your thoughts on rather than a recommendation? Like, how do you how do you look at the look at the issue?

Speaker 1  31:18
So, so that will be I'm too smaller person to advise, but probably you know you can learn from. So we have been as a country, we believe in the concept of Vasudeva Kudumbakam, which means that the world Vasudeva Kudumbakam. The world is a family, right? So if you see, whenever there is anything that happens around the world, any event which is probably worrisome, like an earthquake, India is probably one of the earliest countries to help. It happened even during COVID when we were the first country to give out vaccines around the world free of cost. So we are always open to show, and because we believe that we've there is something which we want to give you, give it to you to learn. You can. So one thing probably you can, I mean, you can always look at the IFSC model because it's fairly successful, we have actually you know done something. So probably there is a need probably to dealing the domestic and international business. That is something which you can learn. Secondly, when you are setting up an international finance business financial centre, it is always important to keep in mind the cost of capital and the cost of compliance. So that is probably the second one that I can tell you. The third one probably which I can say is that there is a need for ease of doing business, and easy ingress and egress for as far as investors are concerned. So you have to factor that also into account when you are drafting rules and regulations.

Dhananath Fernando  32:31
Got it. The other aspect is because these financial cities require a lot of solid and capable talent, competent people. How do you basically manage that as a regulator on one side, because it requires vast experience at the same time to the gift, and also would like to understand about the regulatory framework of gift. Yeah, because like who manages? Is there a commission, or is it under comes also under the regulator? And who maintains the infrastructure? What's the financing model? And a little bit of detail on on that.

Speaker 1  33:11
Yeah, sure. So so the gift city comes under a separate authority. So corporation, the Gujarat Corporation, separate of the state of Gujarat. So it comes separately. They are they are responsible for the development of the. Is it a private company or like the? No, it's a it's a it's a government entity. It's a state government entity which is responsible for that. Whereas we are, as far as we are concerned, we are concerned about the business. Business, right? The entire business rules, regulations, and all these licences which I talked to you about. All those things are needed as far as you know. As far as the it come under our purview, so that is what the IFSCA does,

Dhananath Fernando  33:46
right? Yeah. And how do you make sure that you attract the right talent? Yeah, yeah. You had a

Speaker 1  33:50
question about sorry. I just just keep my mind. So we the Gujarat actually as a sit as a state has is always has been academically also proficient, and of course we can get people from around the country also coming and working here, which anyway happens. But if you take Gujarat as a state itself, now we have the IIT, we have the IIM, the Institute of Technology, Indian Institute of Management, we have a law university nearby, we also have a maritime university. So all these things are just in and around gift. Another thing which I also told you about was the foreign universities, right? There are some 44455, foreign universities who are already setting up their courses here. They offer topics on various things like behavioural finance and so many different things. And the UGC, the University Grants Commission of India, does not involve itself in any of the curriculum. So you get to study international curriculum. Even you know it's open to a lot of you know other countries. Students also can come, like Sri Lankan students, if they want, they can also come and study at half the price of all these international you know universities. So that is how we sort of try to also develop talent. But we have also ensured that. If you bring in a person, that person also needs to have some qualifications. You don't. If you say that, if I'm say that I'm going to tell you that okay, you need to have a principal officer, you need to have a compliance officer, then you will say okay, let me bring in two people and say, do you want two people? Now here are two people, right? That is not something which I want. No. So what we have done is that we have prescribed what are the minimum requirements for a principal officer. What are the minimum requirements for a for for for a compliance officer, a professional qualification, or some years of experience, so that the people who come here are also able to bring that value to that particular jurisdiction. So this is what we try to do for talent. We also have talent shows. We also you know where where with some sort of a congregation of people, where you know we also have you know like for example, I am a company secretary. I am a member of the Institute of Company Secretaries of India. So the ICSI we ask them to you know organise talent hunts. So same thing we also do for the Charter Accordance Institute and others. So then you get to know okay oh there is a Gibb City there is a job available. Then there is someone who is coming from different? Essentially, it's all about awareness, creation of awareness. Because we have the largest population on the planet, so there is someone for every job, right? So we have to only create awareness, saying that okay, there is a job available. So that is also something. Does it

Dhananath Fernando  36:12
mean that let's say there are restrictions for a foreigner to do a job at the finance? Foreigners

Speaker 1  36:20
can can come can come and

Dhananath Fernando  36:22
what's like the the the visa or the immigration immigration laws same

Speaker 1  36:26
India all all same Indian laws same Indian law yes yes yes yes

Dhananath Fernando  36:29
right and like do you get like a resident visa or a particular type of visa so

Speaker 1  36:33
today even foreigners are working in India the same rules and regulations apply to this place also got

Dhananath Fernando  36:38
it and you mentioned something interesting that the when the universities are being set up at the financial city, the Indian like the University Grants Commission, they need not to evaluate the the curriculum or anything as such. So, who is there a separate reg? I mean, basically the concept is at the financial city, the the regulation comes under you. So, is there on education regulation or something? Is is it? We have

Speaker 1  37:04
a foreign universities regulations, but that is more about setting up and what are the minimum requirements that you should have for setting up.

Dhananath Fernando  37:10
Right.

Speaker 1  37:11
So it does not concern itself with the curriculum.

Dhananath Fernando  37:13
Right. And would you like to mention like which universities and like how many students? Yeah. So there are a

Speaker 1  37:19
few universities which I can. There is one Deakin University in Australia. Wollongong is there, and there is also these are the two things which immediately come to my mind. But there are two, three more. I think there is also one from UK that is also set up.

Dhananath Fernando  37:34
Correct. And also, I think you touched upon it, but I would like to explore a bit more that you know most of the financial cities, as you said, like you really need to bring the real activity rather than you know just like post boxes and you know there's no activity, but you just move the money around. So what else that you have have you done to make sure that actually it happens, and how? What is the framework that we need to think about it? Because same coming from the same line of thinking, when we thought about the port city, people had concerns. Okay, this can be like a hub for money laundering, and especially when there's a risk of failing, that of course you drift on a different direction. And there are enough examples how this happens in other parts of the world. So what, how, how, what's the framework that we should think about.

Speaker 1  38:21
Yeah. So, so as I told you earlier, we are very particular about the fact that whatever money that comes in should be AML CFT guideline compliant.

Dhananath Fernando  38:29
Right.

Speaker 1  38:30
So, yeah, we may actually have rules and regulations which are a little tougher than most countries, and particularly more so for an international financial centre. But we don't want to, you know, sort of backtrack on that. So we are very clear that any money that comes in has to be AML safety compliant. So which means that then the whole money laundering concern, etc. is completely out of the window. So it's in fact stricter in certain elements when compared to even India. So India domestic rather. So so that way we ensure that it takes care. Now coming to your other question on substance and how to ensure substance, so what we do is that we also go for inspections. We go for limited inspections, special purpose inspections, as a regulator. We go for surprise inspections. So we just go there and see whether the person is there, whether they are actually having the same qualification. Is it the same A or B whom that person declared in the application as a KMP should not be such that you declare A and then some X is sitting there. So and how is the business actually happening? So this has actually helped and boosted the need to have people there. So even suppose I'm setting up as an intermediary, I know that the regulator is not going to looking look over my shoulder. Then I can have anyone, but when I'm like I'm aware that the regulator is always looking over my shoulder, then they ensure that the people are there. So this has this surprise inspections of IFSCA and also regular inspections which we keep undertaking of our intermediaries and others has ensured that there is substance in the city. There is of course more also to come. The more people established, the more. So over a period of time, then you will have. Hey, I was working in this fund in IFSC. Now this I moved to this bank in IFSC. Like people move in different international finance centres. So that is something also which is happening and will happen. So there is exchange of talent that becomes a pot boiler of it's a melange of different sets of individuals with talent moving inside the international finance centre.

Dhananath Fernando  40:19
Now this leads to the next question as a regulator, because as you said, you have to make the you have to make the business environment better, but at the same time, you have to bring the regulation that you know people don't sidetrack. So, as a regulator, I mean, as as the executive director, how do you again? What's the framework? Because you cannot, I mean, people come for less regulation to so then they can do the business easily, but at the same time, as you said, like you know, keep the show. I mean, you to look above the shoulder and see, you know, no, no, no, no. This is how you things get done. So, what is the strategy on striking a balance between the two?

Speaker 1  40:54
See, the key is ease of doing business is that the operations should be easy to do, right? But it does not mean that you don't have anyone, right? You don't have you. You use it as a letterbox. You work from different parts of the world. So what we have done is is a clear demarcation. We are not interfering in the operations as long as they are compliant with the rules and regulations that we already brought. So a lot of companies are comfortable with

Dhananath Fernando  41:17
it,

Speaker 1  41:18
right? So you have a set of regulations which are different from domestic regulations and they are fit for purpose. They have been crafted for this particular jurisdiction. So you, you know, have that regular filings and other things. People are fine with doing that. Now, when it comes to talent, now what happens? It's important for a regulator to set that culture of compliance. So from day one, if I am told that this is the only way the business takes place in the IFSC. Then you will never have another reference point. You know there was a point in time when I could set up an office without anyone. That was never a reference point, right? The reference point has always been that from day one you need people. So then people know from day one that there is no other alternative. This is the only way. So this is how we ensure, and this has been quite successful, and this is how it will be.

Dhananath Fernando  42:03
Great. Also, want to understand about the the arbitration and the litigation. I mean, what's the judicial process? Because in Sri Lanka, when we had the port city, we thought. I mean, it's a Singaporean system that we are going to bring it in. How does it happen at Gift, and what's the what's the take on as a regulator?

Speaker 1  42:20
Yeah. So, see, we have the Arbitration Conciliation Act in domestic India. So presently, we are also in the process of evolving an arbitration mechanism, a framework of our own. So hopefully, that should happen soon. There are a few cases where arbitration, etc. which would have happened, presently happen in certain jurisdictions like Singapore. But we are shortly going to take care of it by having our own arbitration centre on the IFSC.

Dhananath Fernando  42:46
Got it. And what are the areas that you can you see for for an example India Sri Lanka cooperation on the financial cities? Are there except for gift? Are there any financial cities? I mean, coming up in India, in other states, and if so, how do you see the collaboration with Sri Lanka?

Speaker 1  43:09
So two things. So when it comes to because as if you look at our logo itself, it's International Financial Services Centres Authority. So there can be other centres which can also come up in different parts of the country, but that is the governmental policy. That will be a call that will be taken by the respective state government and the central government. So amongst them, they can come out with that, of course. But we will be the regulator for that also. But when it comes to what can Sri Lanka learn with their cooperation, so and the opportunities for a Lancashire businessman or a Lancan bank. So as we speak on Monday, we have we are going to have the listing of a Sri Lankan you know bank on the National Stock Exchange IX right International Stock Exchange. So which means that there is a scope for yeah because like India you also need capital you also need funds right so you can have businesses which can tap the Gibb City for funds. You can have businesses which can tap the banking industry in the IFSC for funds, right? And if you have companies which want to go abroad, go international, right? So your merchant bankers can actually bring companies there to to to launch their issues, so that you can have international people to come here to to to invest in these companies, so that is something which you can actually do, and there is also a huge business potential, right? See, because you have companies here, you have families here, you want to invest internationally. They can use the IFSC for that. So this way, the cooperation between the two nations can do it, and over a period, you can also learn from the IFSC as to what we have done, so that you can also implement it if you want. Correct.

Dhananath Fernando  44:46
Also, on a on a regulator's point of view, especially on this international financial series, all the big players are going to set up, and there are there is a risk of like the regulatory capture by the big players. In certain instances, like what what mechanisms that you have on on to avoid any regulatory capture? What's the trust factors that you can bring in that this won't happen at at gift and under your regulation?

Speaker 1  45:15
Excellent question. We are the first regulator in India to have a regulation for making regulations. Okay, right. So it was you know also brought in by the Performance Review Committee. We believe in being transparent. So and it is a very important concern that we express that some people are not sort of guiding or bulldozing their way into making rules and regulations. So it does not happen on the IFSCA. So what the IFSCA does is, whenever we discuss, whenever we want to come with a policy, the first thing we do is that we put out a consultation paper. The consultation paper sometimes in in some cases we put out the consultation paper two two times, right? So the first time there will be interested parties who will give their comments. Then you may have market infrastructure institutions that will give comments. Financial investors around the world who will give comments. Then we'll draft something, and then the final law is again placed before the you know the the world you know the world at large on our website for comments. And then we again take into account their comments, and final law the final law is made. So this way we ensure that the comments of all the concerned parties are actually taken into account, and it is transparent. So you know that okay. Before the comments, the law was looking like this. After the comment, the law was is looking like this, and it's because of the fact that A or B or C have given comments. In fact, to go a step further, even our agenda items on the board after the meeting is over, that is also posted on the website, including the comments are also posted on the edge, so you know that in a way that this. I mean, you can't get more transparent than that, and that ensures that this so-called concerns about regulatory capture and other things don't happen.

Dhananath Fernando  46:52
Right. I think we are coming to the final stage of the conversation. Also, wanted to understand on a on a leadership role, someone who has worked for 22 years, like what lessons that you would give for potential individuals who look forward to take up these type of assignments, because it's not an easy role. You have you have targets on one side, you have a lot of conflicts coming from the other side. Like, what sort of skill sets that those people should think about, and like how to how to avoid getting into trouble. What lessons that you could bring as experience? Maybe some case studies that you went through. If it's love to share publicly, some stories.

Speaker 1  47:41
See, so so if an individual aspires to be a regulator, if they want to, the first thing which I would always say for a regulator is that you have to be optimistic. You cannot. You have to create rules and regulations for all weather situations. Right? They cannot act differently when the market goes up. For example, in case of a stock market, and they cannot act differently when it goes down. So it's important to have an all weather. So for that, it is important for you to follow the process of learn, unlearn, and relearn. The most difficult thing in these three things, which I told, is the second part: unlearning what you have learned earlier. Because it is important for you to say that okay, ultimately the winner should be the regulatory framework, right? What has come? It's not about my ego or what I have done. It has to stay. has to It has to listen. It has to listen to what I have done. It has to say the same. So it should not be such that law has to be dynamic. Law also has to take into account different situations. So it also needs to contain the necessary flexibility. It should not be rigid, like because the inflexibility in law always puts people off, and then law also has to be in such a way. Policy making should be in such a way which attracts the issuer, the investor, and the intermediary also. So there are three different people whom you have to satisfy. So sometimes you will not be able to satisfy everyone, but at least majority of what they are able, you are able to do. Ultimately, keeping in mind the IFSC and the vision for which the IFSC was created. Like for example, here the IFSC was created with largely the major three things. One thing was to onshore the offshore, right? Whatever has gone out, you bring in. The second one was to become a hub for global capital flows. It can be you know equity or bond or you know loans and banks and whatnot. The third one is to be a hub for innovation, right? So ultimately, I have to ensure that these three things, which are there in the vision, are taken care of when I craft the rules and regulations or you know policy making. So when when I I don't lose sight of that, then I will ensure that I will do this unlearning and relearning when I do the policy making. So this is something which I probably can say tell the new people keep reading. I mean that is something which I always tell people unless you you never let that go because the world changes so fast and it is changing as we speak, right? So it's important to be abreast so that you don't get left behind.

Dhananath Fernando  50:00
As as a regulator and as GIF, like what is your like success matrix? Like how do you evaluate whether this is moving in the right direction, or are there any benchmarks? Yeah. Or are you are you comparing with like other financial cities? And also, I would in the final few minutes, I would like you to touch upon like also The geopolitical geopolitical dimension into it because now India has become like the third largest economy exceeding Japan. So you are coming into the big players league and you are basically the regionally you take that leadership role on on the other side. So so how how do you how do you explain on these context?

Speaker 1  50:46
So so see one thing which I told you as India as a policy has is that we as a nation have always been open to learning and giving, right? And we automatically not just by virtue of the size in probably the South Asia, it also by virtue of the fact that we also want to you know sort of bring something to the table, add value. So this is how, as a nation, we have been. Now, when it comes to regulations, rule making, and also the fact that you know our position in the world economy and other things are concerned. Now that is a number. So how do you sort of evaluate yourself, right? One is of course there is a matrix which are published by certain third parties where okay I am seeing okay where was gift last time where is gift today, right? Okay, that certainly is there. I mean I would not lie that we would obviously want to see a ranking go up, so that is always there. But there are certain factors which go into making those metrics. So you discount those factors, and still you find that you've gone up. Yeah, that is a regulatory impact assessment for me. Okay, I'm doing something well. But the other larger thing will be my own progress report. I have an annual report which I publish every year. So the previous annual report, I'm going to look at. Okay, there are how many banks? What is amount of business that I have done? How many people are employed? So I go to the next annual report and I'm seeing the same things, right? So I have certain parameters on which I will evaluate myself because deep inside you, you cannot lie to your conscience, right? So my biggest evaluation will, of course, while there will be third-party assessments, my biggest evaluations will be okay. Where I was yesterday, where I am today, and where I will be tomorrow. So that for that I have my own statistics, which which are. I mean, I cannot lie to myself. So those direct statistics are collected by IFSCA. They are published in a quarterly bulletin. Also, every quarter we publish on the bulletin. We also have an annual report. So in the annual report, these statistics give me the direction as to where I have to go and whether I have been doing something right.

Dhananath Fernando  52:45
Thank you, Pradeep. Thank you very much for joining us. Anything, any final thoughts which I did not ask, but do you think that it should be you know worthy to share with us? Anything that I missed out or any final thoughts from your end?

Speaker 1  52:58
No, no, excellent. I think you you had a very wide coverage. I think you have asked us a lot about what we have done and what we propose to do and where we are. And I particularly liked a lot of questions, particularly on regulatory impact assessment, a lot of things, and the regulatory capture thing were excellently crafted. But what I would like to leave the audience with is the fact that we are always open to learning. We are also open to learning, and there is a tremendous business opportunity in the IFSC, which you can tap. So please, there's a lot of information which are available on our website, and and it is also structured under different verticals. So I request everyone to read. They are all are free. They are available for everyone to read. So I would be happy if people are able to do it. Please approach us at any point in time. My email ID, all those things are available on the on the website, and please reach out to you. We'll always help out the way you can.

Dhananath Fernando  53:50
Thank you very much, Pradeep, for joining us, and all the very best on your short visit to Sri Lanka. I'm sure there'll be like the the banks who are opening up at Gift. I'm sure there'll be more Sri Lankan companies who will explore and join the financial city in Gujarat, and all the very best for all your future endeavours. And thank you very much for that. Thank you. And thank you very much for for watching us. And make sure that you subscribe. And also we are available in in in single as Advocata Plus and as Advocata Kural in Tamil. And you can, I mean, we are available on LinkedIn, Facebook, TikTok. You name any social media platform, you should be able to find us on social media. So thank you very much. We'll see you with another episode under Advocata Studio. Take care.


Transcribed by https://otter.ai