New FAQ Page 2 - RBI - Reserve Bank of India
Money Changing Activities
These FAQs attempt to put in place the common queries that users have on the subject in an easy to understand language. The directions relating to the subject of money changing activities including authorisation and functioning of FFMCs, non-bank ADs Category II, and franchisees of Authorised Persons as well as the conduct of foreign exchange transactions with their customers/constituents is laid down in Master Direction on Money Changing Activities as updated from time to time.
Reserve Bank, currently, issues authorisation under Section 10(1) of the Foreign Exchange Management Act, 1999, to
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select banks (as Authorised Dealers Category-I) to carry out all permissible current and capital account transactions as per directions issued from time-to-time
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select entities (as Authorised Dealers Category-II) to carry out specified non-trade related current account transactions, all the activities permitted to Full Fledged Money Changers and any other activity as decided by the Reserve Bank
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select financial and other institutions (as Authorised Dealers Category-III) to carry out specific foreign exchange transactions incidental to their business / activities
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select registered companies as Full Fledged Money Changers (FFMC) to undertake purchase of foreign exchange and sale of foreign exchange for specificied purposes viz. private and business travel abroad.
Application in the prescribed form (as given in Part I: Annex-I of the FED Master Direction No.18/2015-16 on Reporting under FEMA 1999), along with the required documents should be submitted to the respective Regional Office of the Foreign Exchange Department of the Reserve Bank under whose jurisdiction the registered office of the applicant company falls.
Applicant companies should calculate their Net Owned Funds (NOF) of as per the following.
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Owned Funds :- (Paid-up Equity Capital + Free reserves + Credit balance in Profit & Loss A/c) minus (Accumulated balance of loss, Deferred revenue expenditure and Other intangible assets)
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Net Owned Funds :- Owned funds minus the amount of investments in shares of its subsidiaries, companies in the same group, all (other) non-banking financial companies as also the book value of debentures, bonds, outstanding loans and advances made to and deposits with its subsidiaries and companies in the same group in excess of 10 per cent of the Owned funds.
A newly licensed FFMC should commence operations within a period of six months from the date of issuance of licence. A copy of the registration under Shops & Establishment Act or any other documentary evidence such as rent receipt, copy of lease agreement, etc. should be submitted to the Reserve Bank before commencement of business.
An application from an FFMC/non-bank AD Category-II for renewal of licence shall be made two months before expiry of the licence or such other period as the Reserve Bank may prescribe. Where an application for licence renewal is submitted as above, the licence shall continue in force until the date on which the licence is renewed or the application is rejected, as the case may be. No application from an FFMC/non-bank AD Category-II for renewal of licence shall be made after expiry of the licence.
An authorisation granted under Section 10(1) of FEMA 1999 may be revoked by the Reserve Bank at any time if the Reserve Bank is satisfied that -
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it is in public interest so to do; or
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the authorised person has failed to comply with the condition subject to which the authorisation was granted or has contravened any of the provisions of the Act or any rule, regulation, notification, direction or order made thereunder
Reserve Bank also reserves the right to revoke the authorisation of any of the offices of the authorised person for infringement of any statutory or regulatory provision. The Reserve Bank may at any time vary or revoke any of the existing conditions of an authorisation/licence or impose new conditions.
Under the Scheme, the Reserve Bank permits ADs Category - I , ADs Category - II and FFMCs to enter into agency or franchisee agreements at their option for the purpose of carrying restricted money changing business i.e. conversion of foreign currency notes, coins or travellers' cheques into Indian Rupees.
A franchisee can be any entity which has a place of business and a minimum Net Owned Funds of Rs.10 lakh. Franchisees can undertake only restricted money changing business.
An AD Category-I Bank / AD Category-II / FFMC, as the franchiser, is free to decide on the tenor of the arrangement as also the commission or fee through mutual agreement with the franchisee. The Agency / Franchisee agreement to be entered into should include the following salient features:
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The franchisees should display the names of their franchisers, exchange rates and that they are authorised only to purchase foreign currency, prominently in their offices. Exchange Rate for conversion of foreign currency into Rupees should be the same or close to the daily exchange rate charged by the AD Category – I Banks / ADs Category - II / FFMC at its branches.
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The foreign currency purchased by the franchisee should be surrendered only to its franchiser within 7 working days from the date of purchase.
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The maintenance of proper record of transactions by the franchisee.
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The on-site inspection of the franchisee by the franchiser should be conducted at least once a year.
An AD Category – I Bank / AD Category - II/ FFMC should apply to the respective Regional Office of the Reserve Bank, in Form RMC-F (as given in Part I: Annex-II of the FED Master Direction No.18/2015-16 on Reporting under FEMA 1999) for appointment of franchisees under this Scheme. The application should be accompanied by a declaration that while selecting the franchisees, adequate due diligence has been carried out and that such entities have undertaken to comply with all the provisions of the franchising agreement and prevailing Reserve Bank regulations regarding money changing. Approval would be granted by the Reserve Bank for the first franchisee arrangement. Thereafter, as and when new franchisee agreements are entered into, these would have to be reported to the Reserve Bank in Form RMC-F on a post-facto basis along with similar declaration as indicated above.
A franchiser, i.e. AD Category–I Bank/ AD Category–II / FFMC should undertake the following minimum checks while conducting due diligence of its franchisees:
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existing business activities of the franchisee/ its position in the area
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minimum Net Owned Funds of the franchisee
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Shops & Establishments / other applicable municipal certification in favour of the franchisee
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verification of physical existence of location of the franchisee, where restricted money changing activities will be conducted
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conduct certificate of the franchisee from the local police authorities (certified copy of Memorandum and Articles of Association and Certificate of Incorporation in respect of incorporated entities)
Note: Obtaining of Conduct Certificate of the franchisee from the local police authorities is optional for the franchisers. However, the franchisers may take due care to avoid appointing individuals/ entities as franchisees who have cases / proceedings initiated / pending against them by any law enforcing agencies. -
declaration regarding past criminal case, if any, cases initiated / pending against the franchisee or its directors / partners by any law enforcing agency, if any
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PAN Card of the franchisee and its directors / partners
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photographs of the directors / partners and the key persons of franchisee
The above checks should be done on a regular basis, at least once in a year. The franchiser should obtain from the franchisees proper documentary evidence confirming the location of the franchisees in addition to personal visits to the site. The franchiser should also obtain a Chartered Accountant's certificate confirming the maintenance of minimum Net Owned Funds of the franchisee, i.e., Rs.10 lakh on an ongoing basis.
The franchiser, i.e. AD Category–I Bank / AD Category–II / FFMC may appoint franchisees within a distance of 100 kilometres from their controlling branches concerned.
However, this distance criterion is relaxed in case of a recognised group/ chain of hotels appointed as franchisees, provided the headquarters of the group/ chain of hotels falls within a distance of 100 kilometres of the controlling branch of the franchiser concerned.
Further, in case of areas declared as hilly areas (as defined by the respective State Governments/ Union Territories) and the North-Eastern States, the distance restriction given in point (i) above is not applicable.
Franchisers are expected to impart training to the franchisees as regards operations and maintenance of records.
The franchisers, i.e. ADs Category–I Banks / ADs Category–II / FFMCs are expected to put in place adequate arrangements for reporting of transactions by the franchisees to the franchisers on a regular basis (at least monthly). Regular spot audits of all locations of franchisees, at least once in six months, should be conducted by the franchiser. Such audits should involve a dedicated team and incognito visits should also be used to test the compliance level of the franchisees. A system of annual inspection of the books of the franchisees should also be put in place. The purpose of such inspection is to ensure that the money changing business is being carried out by the franchisees in conformity with the terms of the agreement and prevailing Reserve Bank guidelines and that necessary records are being maintained by the franchisees.
Franchisees are required to strictly adhere to the AML / KYC/ CFT guidelines, as applicable to ADs Category–I Banks / ADs Category – II / FFMCs.
Franchisees are required to strictly adhere to the AML / KYC/ CFT guidelines, as applicable to ADs Category–I Banks / ADs Category – II / FFMCs.
Note: No licence for appointment of franchisees will be issued to any FFMC / non-bank AD Category - II, against whom any major DoE / DRI / CBI / Police case is pending. In case where any FFMC / non-bank AD Category - II has received one-time approval for appointing franchisees and subsequent to the date of approval, any DoE / DRI / CBI / Police case is filed, the FFMC / non-bank AD Category - II should not appoint any further franchisees and bring the matter to the notice of the Reserve Bank immediately. A decision will be taken by the Reserve Bank regarding allowing the FFMC / non-bank AD Category - II to appoint franchisees.
Page Last Updated on: December 11, 2022