Stay Informed: Latest Financial Services & IFSC Updates

Financial services contribute to economic growth and development by facilitating banking, investment, savings, insurance, stock markets, debt, and equity shares. These services help private entities and individuals save funds, compete in the market, and protect against risks and ambiguity. They also contribute to the GDP and promote liquidity. Financial services generate employment, reduce the cost of transactions and borrowing, and minimise asymmetric information.

International Financial Services Centres (IFSCs), on the other hand, cater to customers outside the jurisdiction of the domestic economy. They deal with flows of finance, financial products, and services across borders. IFSCs provide a platform for world-class financial services to non-residents and residents in a currency other than the domestic currency of the location where the IFSC is located. They attract overseas investors by providing financial services that are currently being carried out outside India by overseas financial institutions. IFSCs encourage all major global players to operate in such facilities, which in turn facilitates a two-way flow of finance, financial products, financial services, etc.

Recent Developments Shaping Financial Services Today

In today's rapidly evolving financial landscape, change is not just a constant; it's a necessity. Financial institutions are navigating a dynamic environment shaped by emerging technologies, shifting customer expectations, and global trends. Let's delve into the transformative forces currently reshaping the financial sector.

·         Digital Transformation on the Cloud: Financial institutions are increasingly moving their operations to the cloud for better scalability, flexibility, and cost-effectiveness.

·         Better User Experience: Institutions are focusing on improving the user experience to retain customers and attract new ones. This includes everything from user-friendly interfaces to personalised services.

·         Industry Consolidation: Mergers and acquisitions are becoming more common as institutions seek to expand their offerings and reach.

·         Data-Driven Approach: Financial services are leveraging big data and analytics to make informed decisions, understand customer behaviour, and offer personalised services.

·         Scaling and Real-Time Processing: Institutions are investing in technologies that allow for real-time processing of transactions and other financial activities.

·         ESG Practices: Environmental, Social, and Governance (ESG) practices are becoming a focus area for financial institutions. They're considering ESG factors in their investment decisions and business practices.

·         Embedded Finance: This trend involves non-financial firms offering financial products or services directly to their customers. It's becoming increasingly popular as companies seek to provide more value to their customers.

Key Updates and Trends Currently Impacting the IFSC

Now, let’s take a look at some key updates and trends currently impacting the International Financial Services Centre (IFSC):

·         Tax Amendments: The Finance Bill, 2023 has proposed several amendments related to the IFSC. These include:

o   Increasing the tax rate applicable on royalty and fees for technical services in the case of non-resident taxpayers who do not have a Permanent Establishment (PE) in India to 20%.

o   Providing an exemption on certain incomes arising to non-residents or aircraft leasing entities from aircraft leasing business in the IFSC.

o   Offering a concessional tax rate on dividends issued by the IFSC unit to its non-resident shareholders.

o   Offering a concessional tax rate on interest earned on long-term bonds or rupee-denominated bonds listed only on the IFSC stock exchanges.

·         Extended Time for Tax-Neutral Relocation: The Budget 2023 proposes to extend the time for tax-neutral relocation of funds from overseas jurisdictions into GIFT IFSC from March 31, 2023, by another two years. This will give more time to asset managers who recently got permission to work in GIFT IFSC or are in the process. They can now think about starting brand new funds or moving their existing ones there.

·         Non-Applicability of Surcharge and Cess: There is a proposal for the non-applicability of surcharge and cess on certain incomes earned by specified funds in the International Financial Service Centre (IFSC).

Navigating the Financial Services Institutions Landscape as an Entity

Navigating the landscape of financial services institutions can be complex, but here are some strategies that can help. Consider these six core principles and you should be good to go.

1.      Stay Informed: Keep yourself updated about the latest trends and developments in the financial services industry. This could be through news updates, financial blogs (like the one you’re reading right now), podcasts, or newsletters.

2.      Understand Regulatory Changes: Financial institutions operate in a heavily regulated environment. Understanding these regulations and how they impact financial services is crucial. This could involve staying updated on regulatory changes and understanding their implications.

3.      Leverage Technology: Many financial institutions are undergoing digital transformations. Understanding these technologies and how to leverage them can provide a competitive edge.

4.      Network: Building relationships with professionals in the industry can provide valuable insights and opportunities. This might mean going to industry gatherings, becoming a part of professional groups, or engaging in discussions on the internet.

5.      Seek Expert Advice: If you're unsure about certain aspects of the financial services landscape, don't hesitate to seek advice from experts. This could be financial advisors, industry analysts, or experienced colleagues.

6.      Customer Focus: Always keep the customer at the centre of your strategy. Understand their needs and preferences and how they are changing.

What Regulatory Changes Are Currently Influencing the Finance Industry?

A host of regulatory changes are reshaping the finance industry. Let’s discuss the key regulatory changes that are currently influencing the finance industry.

·         Increased Supervision and Enforcement: Regulatory agencies in 2023 will continue executing their broad and ambitious agendas. Anticipate more attention on supervision, rule enforcement, and inquiries, both with existing and new regulations.

·         Climate and Sustainability: Social and political discord, risk management, governance, scenario/stress test analysis, and investment/strategic markets are all areas of focus.

·         Transparency and Reporting: There is an increased focus on reporting, market structure, protections, and controls.

·         Data and Cybersecurity: Cyber risk management and governance, data collection, and privacy are key areas of concern.

·         Technology and Resiliency: Modern technology risk management, technology resiliency, and operational resiliency are becoming increasingly important.

·         Credit and Capital: Capital shifts, credit risk sizing and concentration, and effective compliance are areas of focus.

·         Fairness and Inclusion: Expanded "fairness", impact and "justice", human capital, and DEI are becoming increasingly important.

·         Fraud and Financial Crime: Regulatory focus, interplay with consumer protection, and evolving risks are key areas of concern.

·         Payments and Crypto: Regulatory authority and guardrails, instant payments and controls, disputes, complaints, and claims are all areas of focus.

·         Fintech Regulations: By mid-2023, providers will face harsher regulatory procedures. The new directives will necessitate Buy Now, Pay Later (BNPL) providers carrying out in-depth credit checks on consumers to ensure that they can afford to take out loans.

What Does the Future Hold for the Finance Industry, and How Can We Adapt?

The future of the finance industry is expected to be shaped by several key trends. Let’s explore the key priorities and strategies that are shaping the industry.

·         Finance Transformation: Finance leaders are prioritising leading finance transformation, finance technology, and human-centric work. They are focusing on initiatives that matter, such as transforming to deliver real-time and predictive insights, effortless compliance, and greater flexibility in finance strategy.

·         Data and Analytics Strategy: By 2025, 50% of FP&A leaders will have enterprise-wide data strategy as a key responsibility. Financial leaders need to play a bigger part in overseeing data and analytics (D&A) within their organisations and improve their grasp of the fundamental D&A principles.

·         Align Spend to Growth: CFOs must add “capital activism” to their more traditional attempts to streamline capital allocation processes. Capital activism takes postures embraced by the most productive activist investors and private equity firms and applies them to the internal management of capital through CFOs and their teams.

·         Digital Transformation: The convergence of customer demands, technological advances, and government choices will significantly impact the direction of financial industry market trends.

Conclusion

Understanding the latest trends, regulatory changes, and developments in financial services and International Financial Services Centres (IFSCs) can lead to better decision-making, effective risk management, and the identification of new opportunities for growth. It also ensures regulatory compliance and aids in effective financial planning. As the financial landscape continues to evolve, being well-informed will provide a competitive edge, helping individuals and businesses alike navigate through complexities and thrive in the face of change.