IFSCA alerts Capital Market Intermediaries on “substance” and on-site presence norms in GIFT IFSC

The International Financial Services Centres Authority (IFSCA) has intensified its supervisory scrutiny of Capital Market Intermediaries (CMIs) operating from GIFT IFSC. Recent inspections have exposed serious gaps in regulatory compliance, particularly relating to physical presence, key managerial personnel, infrastructure, and governance practices mandated under the IFSCA Capital Market Intermediaries Regulations, 2025.

This write-up explains the core findings of IFSCA, the regulatory provisions involved, and the immediate compliance expectations for CMIs registered in GIFT IFSC.

Background: Why IFSCA is focusing on “substance” in GIFT IFSC

IFSCA has an explicit mandate to ensure that entities established in GIFT IFSC are not mere “letterbox” or form-over-substance setups. To that end, the Authority has:

  • Stepped up on-site supervisory visits and market intelligence exercises
  • Concentrated on verifying whether CMIs genuinely conduct operations from their registered IFSC offices
  • Checked if key management personnel and control functions are actually present on the ground

The recent supervisory cycle involved multiple surprise visits to office premises of CMIs, examining:

  • Availability and presence of the Principal Officer and Compliance Officer
  • Adequacy of physical and technological infrastructure
  • Manner of conducting trading and back-office operations
  • Existence of proper segregation between business and compliance functions

The outcome of these visits prompted IFSCA to issue a strong warning to CMIs and to initiate enforcement action against certain entities.

Regulatory framework: Key provisions under IFSCA Capital Market Intermediaries Regulations, 2025

The lapses noted by IFSCA directly implicate provisions of the IFSCA Capital Market Intermediaries Regulations, 2025. In particular, non-compliance was linked to:

  • Regulation 9(1) – dealing with presence of designated key managerial personnel (KMPs) in IFSC
  • Regulation 9(6) – prescribing requirements around employees and operations within IFSC
  • Regulation 11(b) – relating to governance and oversight structure of CMIs
  • Clause 16 of Part A of Schedule II of the CMI Regulations – dealing with adequacy of operational infrastructure and governance arrangements

IFSCA has specifically highlighted that failure to maintain real, physical, and functional presence of key personnel and infrastructure in GIFT IFSC is a breach of these provisions.

Major supervisory findings from IFSCA inspections

IFSCA’s market intelligence and on-site inspections brought to light several recurring non-compliance patterns across CMIs.

1. Offices found shut or unattended during business hours

In several instances, IFSCA officials visited the registered office of CMIs during standard business hours and found:

  • The premises closed on multiple visits
  • No staff available to interact with the supervision team
  • An overall impression that no day-to-day business was being conducted from the IFSC office

This raised questions about whether the CMI was actually operating from GIFT IFSC or merely maintaining a nominal address to satisfy registration formalities.

Note: For CMIs in IFSC, “substance” requires active, ongoing, on-site operations—not just a board and an address.

2. Absence of Principal Officer and Compliance Officer

A critical observation was the non-availability of key functionaries at the time of inspections. IFSCA recorded situations where:

  • Neither the Principal Officer nor the Compliance Officer was present in the office
  • No other authorised person was prepared or empowered to answer questions on the CMI’s business model, operations, books, or compliance systems
  • A single individual had been appointed to hold both designations of Principal Officer and Compliance Officer, thereby undermining segregation of responsibilities

Even more concerning, in some CMIs these shortcomings persisted despite earlier Warnings/Advisories already issued by IFSCA, indicating:

  • Repeated non-compliance
  • A casual approach toward regulatory directions
  • Weak internal governance and oversight systems

3. Lack of regulatory awareness among designated officers