The International Financial Services Authority (IFSCA) has notified the IFSCA Bullion Market Regulations, 2025, which introduce important safeguards for the protection of customers’ interests in the bullion market ecosystem in GIFT City, Gujarat. This includes powers to conduct inspections, inquiries, and impose penalties.
The regulations notified on February 13 replace the IFSCA (Bullion Exchange) Regulations, 2020, and empower IFSCA to conduct inspections, inquiries, or audits, and also levy penalties, among other actions, against an erring bullion exchange, bullion clearing corporation, bullion depository, vault manager, or their directors, committee members, key management personnel, employees, or any other associated persons. A chapter on Inspection, Inquiries, and Enforcement has been introduced in the new regulations, empowering IFSCA to appoint an auditor to inspect or investigate the books of accounts, records, documents, infrastructure, systems, procedures, or affairs of these entities.
The new regulations quantify the net worth of the applicant seeking recognition as a bullion exchange or a bullion clearing corporation at $10 million. When asked why the net worth requirements have been reduced compared to the 2020 regulations, IFSCA pointed out that although $30 million was the net worth prescribed earlier, the bullion exchange and bullion clearing corporation were required to maintain a net worth of $6 million as per the Market Infrastructure Institutions (MII) regulations that came into effect later.
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“However, given the profile of products currently traded on IIBX — all of which are pre-funded and settled intra-day (both securities and funds) and thus carry virtually zero settlement risk — it was considered appropriate to adopt a risk-based approach while prescribing net worth requirements for the bullion exchange and bullion clearing corporation. Despite having active trading only in pre-funded products, IIBX has constituted a Settlement Guarantee Fund (SGF) of $1 million, which can be used to meet settlement obligations in case of a default by clearing members. Going forward, as and when leveraged products (derivatives) start trading on IIBX, the corpus of the SGF will be increased based on monthly stress tests. The credit risk of any clearing corporation is largely managed through the SGF, which is linked to volumes and open interest and will necessarily need to be increased as business grows on IIBX,” K Rajaraman, chairperson of IFSCA, told businessline.
Provisions relating to the appointment of a Chief Risk Officer, Chief Legal Officer, and Chief Information Security Officer have been incorporated into the newly notified Bullion Market Regulations. Key Management Personnel (KMP), which had not been defined in the IFSCA (Bullion Exchange) Regulations, 2020, has now been defined. The new definition of KMP includes, among other things, individuals with the ability to influence decisions as well as those involved in core functions.
The definitions of some terms, such as “consumer” and “non-independent directors”, have been revised or introduced in the new regulations. The definition of “consumer” has been broadened to “a constituent of a bullion trading member or a special category client, as mentioned in the circulars issued by the Authority from time to time”. This change was necessitated by the fact that the concept of a Special Category Client (erstwhile Limited Purpose Trading Member) had not been conceived at the time of the original Bullion Exchange Regulations’ notification, the IFSCA stated in a release regarding the new regulations.
The term “non-independent directors” has been introduced, replacing the nomenclature “shareholder directors”. This change provides flexibility to Bullion Market Infrastructure Institutions (MIIs) to appoint as directors individuals who do not necessarily represent their shareholder entities (apart from Public Interest Directors).
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