International Financial Services Centres Authority amends IFSCA (Fund Management) Regulations, 2025

The International Financial Services Centres Authority (IFSCA) has amended the International Financial Services Centres Authority (Fund Management) Regulations, 2025 (FM Regulations), effective from July 30, 2025, introducing Part D (Third-Party Fund Management Services) which provides legal and operational clarity regarding third-party fund management arrangements within International Financial Services Centres (IFSCs).

The amendments define third-party fund management services as activities where a registered fund management entity (FME) manages schemes on behalf of a third-party fund manager registered with or regulated by their home jurisdiction’s financial regulator (Third-Party Fund Management Services). Such FMEs must seek specific authorization from the IFSCA in terms of the newly introduced Part D before undertaking Third-Party Fund Management Services and are required to maintain robust compliance functions commensurate to the extent of their IFSC operations. Despite any indemnity arrangement with the third-party, the FME remains fully liable for all obligations and liabilities related to Third-Party Fund Management Services sought to be provided. The amendments clarify that FMEs intending to set-up and manage schemes on behalf of a third-party shall set up other schemes including carrying out other activities as may be permitted under the FM Regulations in accordance with its registration category, not involving any third-party fund management arrangement.

Key requirements and conditions for provision of Third-Party Fund Management Services are outlined below:

• Constitutional documents (memorandum of association in the case of a company or the limited liability partnership agreement in the case of a limited liability partnership) of the FME must contain provisions allowing the FME to offer Third-Party Fund Management Services.

• An FME shall appoint, for each third-party management scheme, a dedicated principal officer who shall be held accountable for fund management, risk management and compliance. Compliance officer appointments differ based on whether the FME manages retail or non-retail schemes and for additional key managerial personnel (KMP) appointments, the determining factor shall be the assets under management (AUM) of schemes proposed to be managed under a third-party fund management arrangement (excluding AUM of fund of funds schemes managed under the third-party fund management arrangement).

• FMEs offering Third-Party Fund Management Services are required to maintain net worth of USD 500,000 in addition to the minimum net worth required to be maintained by the FME according to its registration category. The amendments permit an FME to manage restricted schemes under third-party fund management arrangement provided the corpus of such a scheme is capped at USD 50,000,000. Moreover, the third-party shall be deemed an associate of the FME for compliance with select FM Regulations.

• The amendments set out the eligibility criteria for the third-party fund manager to whom Third-Party Fund Management Services shall be provided by FMEs which inter-alia include the requirement of the third-party having been incorporated either in India, IFSC, or abroad, ensures adequate resource allocation for discharge of its functions; having experienced key personnel; and for the third-party, its officers, directors/partners, KMPs and controlling shareholders to meet the ‘fit and proper’ standards under FM Regulations. Notably, a third-party fund manager shall be eligible to avail Third-Party Fund Management Services even if the ultimate or interim parent entity is not engaged in fund management activities.

• FMEs are required to make comprehensive disclosures regarding the third-party fund manager and its key individuals, delineation of responsibilities between the FME and such third-party fund manager and potential conflicts of interest that may arise due to third-party fund management arrangement and their mitigation.

• To ensure adequate risk management, FMEs are required to, (i) formulate and implement an internal policy comprising of a comprehensive risk management framework for identification and mitigation of risks arising from third-party fund management arrangements; (ii) segregate funds and operations for all schemes managed by the FMEs; (iii) extend their extant complaint redressal mechanisms to investors of schemes under the third-party fund management arrangements; (iv) formulate an internal policy  for conducting periodic internal audits and compliance reviews followed by submission of the report to the fiduciaries in that regard.

• Other obligations under the amendments require FMEs to ensure: (i) that the third-party meets the eligibility criteria and qualification requirements; (ii) proper onboarding and monitoring of activities undertaken  by the third parties including review and reporting of the services rendered by them; and (iii) that appropriate  indemnity mechanisms are in place requiring the third-party to indemnify the FMEs from potential liabilities  arising from funds managed under the third-party fund management arrangement. FMEs hold the right to terminate third-party fund management arrangements in the interest of investors protection or upon directions of the IFSCA.

• Further, vide its circular dated September 8, 2025, IFSCA has prescribed an application fee of USD 2,500 and an authorization fee of USD 7,500 (prior to grant of authorization) for such FMEs and conditional recurring fees of USD 2,000 every year for each third-party fund manager being serviced. The aforesaid fees are in addition to existing recurring, activity-based fee and other applicable regulatory fee requirements as detailed in prior IFSCA circulars.

• The amendment regulations clarify that all other applicable provisions, circulars and guidelines issued under the principal FM Regulations shall mutatis mutandis apply to FMEs operating under the newly incorporated Part D, except as otherwise specified. Further, Part D shall not apply to schemes where a parent entity or an associate of an FME provides fund management support or advice to the FME without direct third-party fund management.

Conclusion:

The aforesaid framework introduces a rigorous and clear-cut regime for the operation of Third-Party Fund Management Services within IFSCs. By specifying eligibility, authorization, compliance, KMP appointment, disclosure and risk management requirements in a dedicated part of the regulations, IFSCA intends to enhance investor protection, boost operational transparency, and ensure accountability of FMEs and their third-party counterparts.