Navigating the Impact of New Factoring Regulations: A Guide for IFSCs

Introduction

Factoring has emerged as a vital financial tool for businesses, enabling them to unlock working capital by selling their receivables. To streamline and regulate this process within International Financial Services Centres (IFSCs), the International Financial Services Centres Authority (IFSCA) has introduced the Registration of Factors and Registration of Assignment of Receivables Regulations, 2024. These regulations, amended up to February 13, 2025, aim to provide a structured approach to granting registration to Factors and managing the assignment of receivables through Trade Receivables Discounting Systems (TReDS).

This article provides an easy-to-understand breakdown of the key aspects of these regulations and their impact on businesses operating in IFSCs.

What is Factoring?

Factoring is a financial arrangement where a business sells its invoices (accounts receivable) to a third party (Factor) at a discount in exchange for immediate cash. This helps businesses maintain cash flow without waiting for customers to settle payments.

Key Players in Factoring:

• Factor: The entity purchasing the receivables.

• Assignor: The business selling its receivables.

• Debtor: The entity that owes the receivable amount.

• Trade Receivables Discounting System (TReDS): A digital platform that facilitates the factoring process.

Objectives of the New Regulations

The IFSCA Factoring Regulations, 2024 focus on:

1. Granting certificates of registration to Factors.

2. Ensuring compliance with the Factoring Regulation Act, 2011.

3. Mandating the filing of transactions with the Central Registry through TReDS.

4. Enhancing transparency and accountability in factoring transactions.

Key Features of the Regulations

1. Registration of Factors

Businesses intending to provide factoring services within an IFSC must obtain a certificate of registration from the IFSCA.

Registration Requirements:

• The Factor must be registered as a Finance Company under the IFSCA Finance Company Regulations, 2021.

• Key managerial personnel must have relevant factoring experience.

• The Factor must have adequate financial strength and infrastructure.

• The entity and its management must meet the ‘fit and proper’ criteria.

• There should be no ongoing judicial proceedings for financial violations.

2. Conduct of Business

Factors may conduct business:

• Directly with assignors.

• Through an International Trade Financing Services (ITFS) platform for global trade transactions.

Factors must comply with IFSCA guidelines, maintaining operational transparency and reporting transaction details periodically.

3. Registration of Assignments of Receivables

When trade receivables are financed via TReDS, the transaction must be recorded with the Central Registry within 10 days.

Details Required:

• Assignment of receivables in favor of a Factor.

• Satisfaction of assignments upon full realization of receivables.

Failure to register within the given timeline can lead to penalties, though late submissions may be accepted with valid justification.

4. Repeal of Earlier Regulations

With the enforcement of these new regulations, the Registration of Assignment of Receivables (Reserve Bank) Regulations, 2022, and related RBI guidelines will no longer apply to IFSCs.

However, any prior actions taken under these regulations will still be recognized under the new framework.

Why Do These Regulations Matter?

1. Boosts Liquidity: Businesses can quickly access funds by selling receivables, reducing dependency on traditional loans.

2. Enhances Transparency: Centralized registration ensures proper documentation and regulatory oversight.

3. Reduces Credit Risk: Factors assess the creditworthiness of debtors, minimizing risks for businesses.

4. Encourages Global Trade: The ITFS platform facilitates trade financing, benefiting exporters and importers.

5. Regulated Environment: Ensures fair practices and legal security for all stakeholders involved in factoring transactions.

Conclusion

The IFSCA Factoring Regulations, 2024, mark a significant step toward streamlining trade finance in IFSCs. By providing a structured framework for Factor registration and transaction recording, these regulations enhance security, transparency, and financial accessibility for businesses.

With these regulations in place, businesses in IFSCs can leverage factoring to optimize cash flows, reduce credit risks, and expand their global trade operations.

🚀 Is your business ready to tap into the potential of factoring? Now is the time to align with the new IFSCA framework and drive financial efficiency.

Disclaimer: This post is for informational purposes only and does not constitute professional advice. While efforts are made to ensure accuracy, we do not guarantee the completeness or reliability of the information provided. Any reliance is at your own risk. Consult professionals for specific advice.