Dec 01, 2025
Navigating distribution of capital market products/services in IFSC
Introduction
The International Financial Services Centres Authority (Capital Market Intermediaries) Regulations, 2025 (“CMI Regulations”) permits a registered distributor[1] to undertake distribution of capital market products and/ or services to specified clients and investors. Whilst capital market products inter alia include instruments such as shares, debentures, or similar instruments, capital market services inter alia include services such as investment advisory, portfolio management, etc. which are provided by a regulated financial provider.
In this regard, on August 5, 2025, the International Financial Services Centres Authority (“IFSCA”) (i.e. the relevant authority with respect to regulations in the International Financial Services Centre (“IFSC”)) issued a ‘Master Circular for Distributors in the IFSC’ (“Distributors Circular”) to specify the requirements/ directions applicable to distributors (whether required to be registered with IFSCA or not).
The relevant requirements from the Distributors Circular read with the CMI Regulations are set out below:
- Registration requirements: An entity desirous of seeking fresh registration as a ‘Distributor’ with IFSCA must apply exclusively through the SWIT System[2]. For entities already registered with IFSCA in other specified categories and keen to operate as a Distributor as well, the Distributors Circular also sets out a simplified process for them.
- Permissible activities for ‘Registered Distributors’: Distribution of capital market products and/ or services by the registered distributor can be as follows:
| Type of client | Jurisdiction of the issuer/ service provider | Location of the client |
| Any client | India, IFSC or Notified Jurisdictions* | IFSC or any foreign jurisdiction |
| IFSC or Notified Jurisdictions | India | |
| Sophisticated Investors | India, IFSC or any foreign jurisdiction | IFSC or any foreign jurisdiction |
| IFSC or any foreign jurisdiction | India |
*Notified Jurisdictions: United States, Japan, South Korea, the United Kingdom (excluding British Overseas Territories), France, Germany and Canada.
3. Governance and code of conduct requirements: Registered distributors are inter alia required to: (a) appoint a ‘principal officer’ (i.e. an officer responsible for the overall activities of such distributor in IFSC) and a ‘compliance officer’ (i.e. a senior officer who is responsible for legal and regulatory compliances, includes necessary reporting to the board/ management of such distributor) – each of these officers should meet the prescribed qualification requirements as well as be based out of IFSC; and (b) comply with the prescribed code of conduct.
4. Associated Distributor: Registered distributors may further engage/ tie up/ collaborate or in any manner enter into an arrangement (except that of employment) with ‘associated distributors’. Whilst such associated distributors do not require a license/ registration, they are required to comply with the code of conduct requirements.
5. Responsibilities of registered distributors: Per Distributors Circular, a registered distributor is inter alia required to: (a) ensure clear segregation of its proprietary investments and investments relating to distribution activities; (b) not take clients’ assets (including funds and securities) in its custody or exercise control over management of such assets; and (c) enter into written agreements with clients, issuers/ service providers and/ or associated distributors, as applicable, clearly defining the inter se relationship, mutual rights, liabilities and obligations, and other material details thereto.
6.Referral arrangements: Registered distributors may enter into written agreements for soliciting clients through referral/ introducing arrangements, however, such distributors themselves shall continue to be responsible for all obligations and responsibilities for distribution of capital market products/ services to clients.
7.Change in control: Whilst Registered distributors incorporated in the IFSC are required to seek IFSCA’s prior approval for any change in control (whether direct or indirect) of the entity, those merely operating in IFSC under a branch structure are required to only intimate IFSCA, within 15 days of any such change in control. Note that such applications/ letters for such approval/ intimation should inter alia include details of the new shareholders.
Conclusion
The Distributors Circular brings much-needed clarity to the registration and entry pathways and the existing regulatory framework for distributors especially in the concepts involving collaboration with other participants (such as associated distributors who themselves do not require registration), use of referral arrangements, confirming/ clarifying participation of cross-border investors and in effect, also providing impetus to innovation of products (albeit under the supervision of the IFSCA).
Streamlining of compliance architecture and operating models by Distributors will also help further strengthen IFSC’s position as a global hub.
Endnotes:
[1] Note: ‘Registered distributor’ means a distributor registered with the International Financial Services Centres Authority. The term ‘Distributor’ means a person who for a commission or fee engages with clients to facilitate investment or subscription into ‘capital markets products’ or ‘capital markets services’.
[2] Note: ‘SWIT’ or ‘Single Window IT System’ is an online platform designed, inter alia, to facilitate the processing of applications submitted by an applicant for obtaining Certificate of Registration under the CMI Regulations, which streamlines application processes for various regulatory approvals, including those from IFSCA, SEZ authorities, and GSTN.