What is the news : Dr. K.P. Krishnan committee on “Variable Capital Company” has submitted its report to International Financial Services centres Authority (IFSCA) regarding feasibility of Variable Capital Companies in International Financial Services Centres in India.

What is Variable Capital Company:

VCC –

• Is an alternative form of corporate vehicle which can be used for open-ended as well as closed-ended alternative and traditional fund strategies.
• Is a corporate vehicle with flexible capital because of which shares are created when investments are made and shares are readily redeemable by shareholders.
• Has been designed for fund management industry.

What did the committee recommend :

Committee –

• Assessed features of VCC or its equivalent, in jurisdictions of Singapore, UK, Ireland and Luxembourg.
• Recommended to adopt a VCC-like legal structure to conduct fund management activity in IFSCs.
• Recognized that, legal framework governing entities which undertake fund management should provide certainty and clarity to each

About IFSCA:

• IFSCA
• Enables bringing back the financial services and transactions that are currently carried out in offshore financial centers by Indian corporate entities and overseas branches / subsidiaries of financial institutions (FIs)to India by offering business and regulatory environment that is comparable to other leading international financial centers in the world like London and Singapore.
• Would provide Indian corporates easier access to global financial markets.
• Members: The Authority shall consist of a Chairperson, one Member each to be nominated by the Reserve Bank of India (RBI), the Securities Exchange Board of India (SEBI), the Insurance Regulatory and Development Authority of India (IRDAI) and the Pension Fund Regulatory and Development Authority(PFRDA), two members to be dominated by the Central Government and two other whole-time or full-time or part-time members.
• Functions of the Authority: The Authority shall regulate all such financial services, financial products and FIs in an IFSC which has already been permitted by the Financial Sector Regulators for IFSCs. The Authority shall also regulate such other financial products, financial services or FIs as may be notified by the Central Government from time to time. It may also recommend to the Central Government such other financial products, financial services and financial institutions which may be permitted in the IFSCs.
• Powers of the Authority: All powers exercisable by the respective financial sector regulatory (viz. RBI, SEBI, IRDAI, and PFRDA etc.) under the respective Acts shall be solely exercised by the Authority in the IFSCs in so far as the regulation of financial products, financial services and FIs that are permitted in the IFSC are concerned.
• Processes and procedures of the Authority: The processes and procedures to be followed by the Authority shall be governed in accordance with the provisions of the respective Acts of Parliament of India applicable to such financial products, services or institutions, as the case may be.
• Grants by the Central Govt: The Central Govt. may, after due appropriation made by Parliament by law in this behalf, make to the Authority grants of such sums of money as the Central Government may think fit for being utilized for the purposes of the Authority.
• Transactions in foreign currency: The transactions of financial services in the IFSCs shall be done in the foreign currency as specified by the Authority in consultation with the Central Govt.