(Bhaskar Vishwajeet, Senior Editor at IELR) On August 17, 2024, the International Financial Services Centre Authority (IFSCA) proposed to add a chapter to the IFSCA (Fund Management) Regulations, 2022, enabling third party fund management services – also known as 'Platform Play', for funds regulated by IFSCA.
Third party fund management services (see Carne ManCo) are essentially technologically-enabled launchpads for fund managers to leverage the expertise and experience of existing funds/fund platforms to kickstart their fund operations. Such platforms are most prominent as a cost-effective cross border channel to launch various fund structures like Alternate Investment Funds (AIFs) and Exchange Traded Funds (ETFs) in a non-residential jurisdiction (for a prospective fund manager).
IFSCA’s proposal takes inspiration from Luxembourg’s renowned regulatory incentive to foster a favourable fund management services climate. This started with European Directive 85/611/EEC (EEC Directive), which permitted cross-border distribution (think marketing) of collective investment units within the European Economic Community. Later, in 1988, Luxembourg popularised the idea of the ‘Management Company’ (ManCo) by adopting European Directive 2009/65/EC (EC Directive) under its national law. The EEC and EC Directives, when implemented domestically, transformed the fund management industry in Luxembourg, creating a supportive platform for non-residential fund managers to seek registration and distribution of units based out of Luxembourg.
The IFSCA wants existing Investment Managers/ Fund Manager Entities (FMEs) to offer fund platforming (platform play) services that permit other fund managers to avail their services, promising a fillip to new entrants and diversifying the fund management base. This is important because GIFT IFSC, as of March 2024, has 234 FMEs and funds. Many of these funds can be stimulated by accessing new strategies and distribution options. Additionally, new asset classes (products) like the one introduced by SEBI recently, can play a big role when permitted through fund platforming in Indian IFSCs.
Permitting fund platforming is also in line with the general administrative stance on regulatory sandboxes, i.e., test-bed environments that enable innovative solutions. That said, preliminary assessments could have been carried out by deploying fund platforming for select FMEs/funds using the regulatory sandbox mechanisms. Results from the same would have provided a more granular picture of the proposal’s potential in Indian IFSCs. Nevertheless, if implemented, the proposal can continue the positive experimental trend in developing robust international financial services centres in India.
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