Physical presence requirement

A licence to operate in GIFT City is a licence to operate in GIFT City. Not from a laptop in another state, and not from an empty room with a nameplate.

IFSCA puts this in plain words. The office premises must be open, with the physical presence of manpower. That manpower includes the Principal Officer and the Key Managerial Personnel, who are mandated to be based out of the IFSC. The reason given is short and practical: so the unit can effectively discharge its activities.

This is not an anti-money-laundering rule. It sits in the licensing regulations. But it does all the AML work behind the scenes. Every duty in the AML rulebook — rating a customer, spotting an alert, deciding whether to file a report — needs a person in a chair. A closed office cannot do any of it.

And IFSCA checks by turning up. The workbook shows what happens when nobody is there.

How IFSCA supervises. Chapter 5 records that IFSCA conducts both onsite and offsite supervision of regulated entities to check compliance with AML and CFT regulations. Chapter 7 shows what the onsite half looks like: unannounced surprise visits to the registered premises.

The case. IFSCA v. NEO Asset Management Private Limited (IFSC Branch), registered as a Fund Management Entity in the Registered FME (Non-Retail) category on 22 November 2023 under registration number IFSCA/FME/II/2023-24/084.

The Advisory Letter was scanned and emailed to the Principal Officer and the Compliance Officer, and the branch was told it could also collect the physical copy from IFSCA's head office at GIFT IFSC. It did neither — it did not collect the letter and did not acknowledge or reply to the email.

The order. Passed under Regulation 143 of the IFSCA (Fund Management) Regulations, 2022, read with Sections 12 and 13 of the IFSCA Act, 2019 and Section 11B of the SEBI Act. The proceedings were disposed of with a Warning to the Noticee and to its IFSC Branch, to be careful in future about compliance with Regulation 7(4) and Regulation 10(1) of the Fund Management Regulations. Repetition of either violation is to be treated as a matter of serious concern and will result in stringent action.

Watch the date arithmetic. The letter is dated 12 September 2024 and the workbook records the four-week period as completing on 12 October 2024. Four weeks from 12 September is in fact 10 October, so the workbook is counting a calendar month rather than 28 days. Answer with the workbook's 12 October 2024, and do not recompute it in the exam.

The NEO figures are the workbook's. The comparison is illustrative.

Count what four empty offices cost, and what they did not.

So the sanction was a Warning and nothing more, after four failed visits and an ignored letter. Compare the money penalties in the same chapter of the workbook: Rs 1 lakh on Way2Wealth Brokers (the workbook prints Rs. 1 Lac), Rs 5,49,00,000 on Paytm Payments Bank and Rs 9,27,00,000 on Bybit Fintech — all imposed by FIU-IND under Section 13 of the PMLA for reporting failures, a different statute and a different regulator.

Why a free warning is not free. Illustrative. Suppose the branch now wins a mandate to manage a USD 40 million fund. The warning is on the public record, and the order says repetition will be treated as a matter of serious concern. The next surprise visit therefore starts from a recorded first offence, not from a clean slate — and the branch has to put a Principal Officer and Key Managerial Personnel in GIFT City, at GIFT City cost, before it can take the mandate at all.

The cheapest compliance in this case would have been answering one email.

Chapter 7 (Discussion on PMLA related Cases), section 7.3, is the NEO Asset Management order in full — the dates, the four visits, the Advisory Letter and the Warning. Chapter 5 supplies the onsite-and-offsite supervision sentence that explains why a surprise visit is possible at all.

Expect a case-recall question: how many surprise visits were conducted (four), what was the outcome (a Warning, not a penalty), which regulations were cited (Regulation 7(4) and Regulation 10(1) of the IFSCA (Fund Management) Regulations, 2022), and who was absent (the Principal Officer and the Key Management Personnel). The discriminating question is the outcome: candidates assume four failures must mean a fine.

• The sanction was a Warning, with no monetary penalty. Four surprise visits and an ignored advisory letter still produced a warning. The rupee penalties in the same chapter are FIU-IND's, under Section 13 of the PMLA, and belong to different cases.
• This is a Fund Management Regulations requirement, not an AML Guidelines requirement. The order cites Regulation 7(4) and Regulation 10(1) of the IFSCA (Fund Management) Regulations, 2022, and Regulation 143 as the power to act. Do not answer with a clause of the AML, CFT and KYC Guidelines.
• Principal Officer and Key Managerial Personnel are both required to be based out of the IFSC. Naming only the Principal Officer is an incomplete answer.
• Four weeks, from 12 September 2024. The workbook records that period as completing on 12 October 2024 — take its date, even though four calendar weeks would end on 10 October.
• Not collecting the letter is not a defence. The letter was emailed to the Principal Officer and the Compliance Officer, and the branch was told a physical copy was available. Failing to collect or reply was treated as part of the conduct.
• Do not confuse this with the Shell Financial Institution rules. An absent office is a licensing failure by a genuinely licensed unit; a Shell Financial Institution is a counterparty the Guidelines bar outright. The workbook does not connect the two.
• Supervision is onsite and offsite. A question that offers "only through periodic returns" is wrong on the workbook's own words.