IFSCA Grants 6-Month Extension for IFSC Custodian Appointment

Circular No. F. No. IFSCA-IF-10PR/7/2024-Capital Markets; Dated: 24.05.2025

1. Background

The International Financial Services Centres Authority (IFSCA) notified the IFSCA (Fund Management) Regulations, 2025 on 19 February 2025, replacing the 2022 framework. Among other things, Regulation 132 introduced a mandatory requirement for certain fund schemes to appoint an independent custodian located in an IFSC within a specified timeline.

2. Original Timeline Under Regulation 132

Regulation 132 originally gave Fund Management Entities (FMEs) 12 months from 19 February 2025 to ensure that every:

• Retail scheme
• Open-ended “Restricted” scheme
• Scheme (of any type) with Assets Under Management (AUM) > USD 70 million

has an independent custodian based in the IFSC (unless host-country law for underlying securities demands a local custodian).

3. Circular Dated 24 May 2025 – Six-Month Extension

On 24 May 2025, IFSCA issued a circular granting an additional six months for FMEs to comply with the custodian requirement. The extended timeline runs from the date of the circular, effectively giving schemes until 24 November 2025 to finalise the appointment.

4. Schemes Eligible for the Extension

The relief applies to:

1. Schemes first taken on record on or after 19 February 2025 (i.e., under the 2025 regulations); and
2. Existing schemes (retail, open-ended restricted, or AUM > USD 70 m) that were already in operation but still needed to transition their custodial arrangements to an IFSC-based provider.

5. Key Conditions Remain Unchanged

• Location – The custodian must be registered and operate within an IFSC (GIFT City at present), unless the securities’ jurisdiction legally requires a domestic custodian there.
• Independence – The custodian must be unrelated to the FME to avoid conflicts of interest.
• Scope – The custodian is responsible for both safekeeping of assets and post-trade settlement oversight.

6. Recommended Next Steps

1. Map Affected Schemes – Identify all schemes that fall within the three categories and their current custodian status.
2. Engage IFSC Custodians Early – Capacity may tighten as the deadline approaches.
3. Update Investors – Notify unit-holders about the timeline and any operational blackout periods during asset transfer.
4. Document Compliance – Maintain board minutes, due diligence reports, and executed custody agreements for future IFSCA inspections.

7. Key Takeaways

• Regulation 132’s 12-month window has effectively become 18 months for eligible schemes, ending 24 November 2025.
• The extension offers breathing room but does not dilute the requirement for an IFSC-based, independent custodian.
• Early planning will minimise transition risk, maintain investor confidence, and ensure seamless regulatory compliance.

Click Here To Read The Full Circular