RBI Proposes Streamlined Framework For Money Changers' Authorisation
The Reserve Bank of India (RBI) has proposed draft norms to simplify the authorisation process for money changers, taking into account the widespread availability of banking services and exploring fresh models for foreign exchange-related services. The existing framework under the Foreign Exchange Management Act (FEMA) was last reviewed back in March 2006.
The central bank aims to enhance the ease of foreign exchange transactions for users while reinforcing regulatory oversight over authorised persons (APs), as highlighted in the draft norms. This review comes amidst the expansion of financial services due to initiatives in financial inclusion, deeper integration of India's economy globally, digitalisation of payment systems and evolving institutional structures over the past two decades.
Feedback on these draft norms is open for submission until 31 January 2024, seeking industry input before finalising the proposals.
The proposed norms introduce a new category of money changers that could conduct currency exchange business through an agency model as forex correspondents (FxCs) of category-I and category-II authorised dealers. These entities would not require authorisation from the RBI, marking an effort to simplify regulatory processes.
In a bid to reduce regulatory complexities and improve the business environment, the RBI suggests perpetual renewal of existing authorisations as AD category-II. This category allows the issuance of forex pre-paid cards to residents traveling abroad for private or business purposes, subject to compliance with specified requirements.
Existing full-fledged money changers (FFMCs) can seek an upgrade of authorisation to AD Category-II or existing AD Category-II entities can apply to the Reserve Bank for permanent authorisation, provided they meet revised eligibility criteria. The proposal includes a two-month window before existing authorisations expire for entities seeking renewal under the new framework.
To bolster their capabilities, the RBI suggests that AD Category-II entities be allowed to facilitate trade-related transactions up to Rs 15 lakh per transaction, expanding their operational scope.
Additionally, the proposed forex correspondents will operate on a principal-agency model where AD Category-I or AD Category-II will act as the principal for the FxCs. Transactions conducted by FxCs on behalf of the AD will be recorded in the books of the principal AD.
Entities defined under the Companies Act 2013, NBFCs, banks, existing FFMCs, or AD Category-II entities either surrendering or after the expiry of their authorization will qualify to operate as FxCs, bringing in new participants into this revised framework.
