The Reserve Bank of India (RBI) is drafting new rules to allow ‘authorised persons’ to become money changers under the Foreign Exchange Management Act (FEMA), the Mint has reported.
First announced in RBI’s statement on Development and Regulatory Politics dated June 8, 2023, a draft licensing framework in this regard, is available on the central bank’s portal too. Also, RBI has invited comments and feedback on the framework.
Forex Correspondents Scheme
Under this, a new category of money changers has been proposed to enhance the ease of doing business; they will be allowed to conduct money changing by becoming forex correspondents of Category-I and II authorised dealers (ADs), the draft on the RBI portal says.
The ADs need not seek authorisation from RBI; transactions carried out by forex correspondents on an AD’s behalf, will be reflected in the books of the principal AD; and, forex correspondents will have a general permission to deal with the ADs in foreign exchange as permitted under the FCS (Financial Control System).
Additionally, the correspondents can buy and sell foreign currency notes/ travellers’ cheques for foreign private and business travel, and can distribute forex prepaid cards under the terms and conditions stipulated by the principal AD.
Lastly, a forex correspondent cannot have a relationship with more than a single authorised dealer, and can make transactions only with the public or the principal AD.
Perpetual authorisation
Here, authorisation to entities that are keen to operate under Category-II, is proposed for one year in the beginning, to be subsequently renewed for a period between one year and five years.
To bring the regulatory burden down and to improve the ease of doing business, therefore, a suggestion has been made to renew an existing authorisation as an AD Category-II on a ‘perpetual’ basis. This, however, is subject to the revised eligibility criteria laid down in the new framework.
