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he Wall Street sign at the New York Stock Exchange (NYSE)  (AFP)
he Wall Street sign at the New York Stock Exchange (NYSE) (AFP)

Global financial centres may be losing their grip

A balanced legal and regulatory framework, sustainable domestic economy, robust political system, developed infrastructure, strategic locations are a part of an International Financial Services Centre

An International Financial Services Centre (IFSC) facilitates financial flow across countries and offers products and services. With countries seeking to expand their economy, IFSC offers benefits to countries at large. However, a global crisis may derail IFSC benefits. Mint explores.

What does an IFSC essentially do?

An IFSC offers financial products and services to domestic and international institutions, and infrastructure facilities of global standards. It facilitates banking and financial institutions offering fund raising, wealth management, asset management, international portfolio diversification, global tax management, risk management for transnational firms. A balanced legal and regulatory framework, sustainable domestic economy, robust political system, developed infrastructure, strategic locations are a part of an IFSC. In India, IFSC Authority was set up to regulate and strike a balance between interest of different stakeholders.

Which are the major IFSCs worldwide?

Global Financial Centres Index (GFCI) ranks IFSCs on the basis of international competitiveness. New York, London and Shanghai were ranked as the top three in September 2020. New York is home to two biggest stock exchanges, NYSE and NASDAQ. London houses the Bank of England and LSE. Tokyo, a close third, lost its position to Shanghai. Gujarat International Finance Tec (GIFT) City in India is named as an emerging global contender. The ranking is based on parameters like financial sector development, business environment, human capital, infrastructure factors, and reputation and general factors.

Finacial centres
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Finacial centres

What are some of the advantages of an IFSC?

New York, London, Tokyo, Hong Kong, Singapore and Dubai are the leading global financial centres. IFSCs are contributors to economic growth and generate jobs by offering the same ecosystem to financial services firms in offshore locations. But, events such as social unrest in Hong Kong, the 2008 financial crisis, and increased protectionism could slacken their benefits.

Is GIFT City’s growth crucial for India?

Mumbai was recommended as an IFSC in 2007. However, following the global financial crisis, nations were cautious about opening up their financial sectors. Thereafter, in 2015, the first IFSC banking unit in GIFT City became operational. GIFT City seeks to provide for India’s financial services capability by offering international standard infrastructure. It has a simple legal framework and a competitive tax regime which encourages setting up of offshore financial services and businesses similar to those in Singapore and Dubai.

How will London IFSC be hit post-Brexit?

As per the September GFCI rankings, New York is four points ahead of London, which is a hub for international banks, asset managers, insurance companies and hedge funds. For European Union, it is an opportunity to repatriate business from London and bolster EU’s position in the world economic order. British financial services firms will lose the benefit of offering unimpeded services, advice or insurance to clients across EU.

Jagadish Shettigar and Pooja Misra are faculty members at BIMTECH.

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