The International Financial Services Centres Authority (IFSCA) has prescribed financial requirements for existing payment system operators (PSOs) and entities planning to start payment system operations in International Financial Services Centres (IFSCs).
Under a circular issued on October 27, the regulator has specified the minimum net worth that certain categories of operators must maintain. Other categories, including large-value payment systems and card payment networks, must maintain a sound financial position.
Existing payment system operators have six months from the date of the circular to meet the requirements. They must also submit a certificate from their statutory auditor confirming compliance for the previous financial year by September 30 every year.
New applicants must submit a certificate from their statutory auditor confirming that they meet the applicable financial requirements along with their application.
What are the financial requirements?
IFSCA has specified the following requirements for different categories of payment system operators:
- Trade Receivables Discounting System (TReDS): Operators must maintain a minimum net worth of $1 million.
- Legal Entity Identifier (LEI) issuers: These entities must have a minimum net worth of $200,000.
- Trade repositories: These entities must maintain net worth equivalent to at least one year’s operating costs. The calculation must be carried out every six months.
- Large-value payment systems: Operators must maintain a sound financial position.
- Card payment networks: Operators must also maintain a sound financial position.
Net worth refers broadly to a company’s financial resources after adjusting for specified liabilities and losses.
Under IFSCA’s rules, it will include paid-up equity capital, eligible reserves and certain preference shares that must be converted into equity. Accumulated losses, intangible assets and deferred revenue expenditure will be deducted, where applicable. Reserves created by revaluing assets cannot be counted.
What does the rule mean for new applicants?
Entities seeking to start payment system operations in an IFSC will have to demonstrate that they meet the applicable financial requirements when applying to the regulator.
For existing operators, the six-month compliance window gives them time to meet the prescribed criteria. They will then have to provide annual confirmation from their statutory auditors. Trade repositories will also need to submit half-yearly calculations of their net worth against operating costs.
The circular came into force with immediate effect on October 27.