The world of international trade is becoming increasingly digitized, and a critical development in this transformation is the establishment of International Trade Financing Services (ITFS) platforms. These platforms offer a cutting-edge solution to bridge the trade finance gap, allowing global exporters and importers to access financing services like factoring, forfaiting, bill discounting, and supply chain financing. The ITFS platforms, regulated for transparency and security, aim to provide these services through a competitive bidding mechanism, ensuring the best possible prices for users. Notably, these platforms operate within the International Financial Services Centre (IFSC), providing a global hub for trade finance services.
Key Changes in the Revised Guidelines
Streamlined Eligibility Criteria One of the most significant updates in the revised guidelines is the streamlining of the eligibility criteria for setting up an ITFS platform. Previously, the guidelines focused heavily on the net worth requirement for the parent company of the platform. However, the revised framework now emphasizes a more holistic approach, considering financial, technological, and general criteria that an applicant must meet. This shift allows for a broader pool of applicants and encourages innovation from diverse entities that can contribute to the success of the ITFS platform.
On-Tap Registration Process In a move designed to improve flexibility and inclusivity, the revised guidelines introduce an “on-tap” registration process. This change replaces the previous closed application timeline, allowing eligible entities to apply for registration at any time. Additionally, the guidelines now outline a clear process for provisional registration, and the conditions under which registration may be revoked, refused, or surrendered. This shift offers greater accessibility to potential operators, encouraging a more dynamic and responsive trade finance ecosystem.
Expanded Scope of Permissible Activities The revised guidelines also expand the scope of permissible activities on ITFS platforms. Notably, secondary market transactions of trade finance units are now allowed, which will enhance liquidity on these platforms. This is a crucial development, as it opens new avenues for participants to trade their receivables and liabilities, creating a more vibrant market. Furthermore, ITFS platforms are now empowered to facilitate the clearing and settlement of funds by registering as payment system operators under the IFSCA (Payment and Settlement Systems) Regulations, 2024. This change will streamline payments, making the entire process more efficient.
Wider Range of Eligible Participants The revised guidelines broaden the list of eligible participants. While financiers, exporters, and importers remain central, the inclusion of payment service providers is a notable development. This will simplify currency exchanges and payment processes, allowing participants to receive payments in their local currencies more quickly and cost-effectively. This added flexibility helps optimize the user experience and encourages greater global participation.
Expansion of Eligible Financiers Another important update is the expansion of eligible financiers who can participate on the ITFS platforms. The original guidelines allowed only banking units in IFSC and finance companies registered with IFSCA or other global financial regulators. The revised guidelines now allow factors registered under the Factoring Registration Act, 2011, and finance companies in IFSC with authorization to undertake lending or factoring activities. This wider scope of financiers helps bring in more capital and diverse financing options, ultimately benefiting exporters and importers.
To ensure the integrity of the platform, the revised guidelines mandate that these financiers must be incorporated in jurisdictions compliant with the Financial Action Task Force (FATF) and have a proven track record in managing assets of at least USD 5 million. Additionally, these entities must have a minimum capital of USD 5 million to participate.
Conclusion
The revised guidelines for ITFS platforms mark a significant step forward in enhancing the accessibility, flexibility, and effectiveness of international trade finance services. With streamlined processes, expanded activities, and a broader range of eligible participants and financiers, the updated framework will contribute to a more robust global trade finance ecosystem. As the world increasingly shifts toward digital finance, these reforms represent a critical move towards bridging the financing gap and fostering greater global trade collaboration.
