The Reserve Bank of India (RBI) has proposed to streamline and simplify the licensing framework for money changers to explore models to facilitate foreign exchange-related services and meet the new requirements of the fast-growing Indian economy.
“The Reserve Bank has reviewed the existing authorization framework of FEMA to further improve the ease with which foreign exchange transactions can be carried out by users while strengthening the regulatory oversight/framework for APs,” RBI's draft licensing framework guidelines said .
According to the RBI, the objective is to achieve operational efficiency in providing foreign exchange facilities to individuals, tourists and businesses while maintaining adequate security arrangements.
The central bank's latest decision is due to the progressive liberalization under FEMA, the increasing integration of the Indian economy with the global economy, the digitalization of payment systems and the evolving institutional structure.
The Authorized Persons (APs) Licensing Framework issued under FEMA in 1999 was last reviewed in March 2006.
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“The (current) review will focus on streamlining the authorization framework for money changers in view of the widespread availability of banking services to the public and explore alternative models to facilitate foreign exchange-related services,” the central bank says.
The new framework will also improve the scope of services offered by AD Category II companies and review the regulatory framework for APs.
The RBI has proposed to introduce a new category of money changers who can conduct currency exchange business through an agency model by becoming Forex Correspondents (FxCs) of authorized Category I and Category II companies. Such companies do not need to seek approval from RBI.
As far as perpetual registration is concerned, RBI says that in order to reduce regulatory burden and ease of doing business, it is proposed to renew an existing registration as AD Category II on perpetual basis.
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Regarding the transition, the RBI states that existing full-fledged money changers may approach it for an update of AD Category II approval or an existing AD Category II may apply two months before the expiry date of the existing approval could contact them to apply for a permanent admission permit. “If the company approaches the Reserve Bank with a request to renew its existing authorization, such renewal will only be considered up to a date no later than two years after the entry into force of the new framework.”
The RBI has also proposed to allow AD Category II companies to facilitate additional trade-related transactions up to a value of ₹15 lakh (per transaction).
To increase the reach of foreign exchange services, RBI has proposed a system namely FCS. It is based on a principal-agency model, where authorized individuals in AD Category I or AD Category II act as principals for the FxCs. Accordingly, the FxCs would enter into agency agreements with an AD Category I or AD Category II person authorized under the FCS.
All parties involved are requested to provide feedback on the draft framework by January 31, 2024.
Notably, RBI grants authorization in the form of license to authorized persons which include Authorized Companies and Full-fledged Money Changers (FFMCs). In addition, selected institutions are granted permission to conduct certain foreign exchange transactions in connection with their business activities. In India, there are a total of 101 AD Category 1 companies and a total of 75 AD Category 11 companies and 1,763 AD Category 111 companies.
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