On August 5, 2025, the International Financial Services Centres Authority (IFSCA) issued a significant Master Circular aimed at regulating Environmental, Social, and Governance (ESG) Ratings and Data Products Providers operating within the International Financial Services Centre (IFSC) in India. This circular is a crucial step in establishing a robust regulatory framework for capital market intermediaries, ensuring transparency, accountability, and compliance in the burgeoning field of ESG ratings.
The Regulatory Framework
The Master Circular is part of the broader International Financial Services Centres Authority (Capital Market Intermediaries) Regulations, 2025 (CMI Regulations). Its primary objective is to provide a comprehensive regulatory framework for the registration, regulation, and supervision of capital market intermediaries in the IFSC. This framework is essential as it lays down the groundwork for ESG ratings, which have become increasingly important for investors seeking sustainable investment opportunities.
Key Provisions of the Circular
- Registration Process
The circular outlines a streamlined registration process for ESG Ratings and Data Products Providers through the Single Window IT System (SWIT). This system simplifies the application process, allowing entities to submit their applications for registration, approvals, and necessary clearances in a unified manner. The SWIT system is designed to enhance the ease of doing business in the IFSC, making it more accessible for new entrants.
- Governance and Compliance
The circular mandates that each ESG Ratings and Data Products Provider must appoint a Principal Officer and a Compliance Officer, both of whom must meet specific qualification criteria. This governance structure is vital for ensuring that these entities operate within the regulatory framework and adhere to the highest standards of conduct.
- Code of Conduct
Providers are required to adhere to a Code of Conduct that emphasizes transparency, good governance, and the management of conflicts of interest. This code is aligned with international standards, including recommendations from the International Organization of Securities Commissions (IOSCO) and the International Capital Market Association (ICMA).
- KYC, AML, and CFT Guidelines
The circular emphasizes the importance of Know Your Customer (KYC), Anti-Money Laundering (AML), and Counter-Terrorist Financing (CFT) guidelines. ESG Ratings Providers must comply with these regulations to ensure that their operations are not only ethical but also secure from financial crimes.
- Periodic Reporting and Audits
To maintain transparency and accountability, the circular requires ESG Ratings Providers to submit quarterly reports and undergo annual compliance audits. This regular oversight is crucial for ensuring that these entities remain compliant with the regulations and continue to uphold the integrity of their ratings.
- Cybersecurity Measures
In an increasingly digital world, the circular also addresses the need for robust cybersecurity measures. ESG Ratings Providers must implement a comprehensive cybersecurity framework to protect sensitive data and maintain the trust of their clients.
Conclusion
The Master Circular for ESG Ratings and Data Products Providers in the IFSC represents a significant advancement in the regulation of ESG-related activities in India. By establishing clear guidelines and requirements, the IFSCA aims to foster a transparent and accountable environment for ESG ratings, which are essential for guiding sustainable investment decisions. As the demand for ESG-compliant investments continues to grow, this regulatory framework will play a pivotal role in shaping the future of capital markets in India and beyond.