RBI proposes framework to simplify money changers’ authorisation

The Reserve Bank of India (RBI) has proposed to rationalise and simplify the licencing framework for money changers to explore models for facilitating foreign exchange-related services and meet the emerging requirements of the rapidly growing Indian economy.

"Reserve Bank has reviewed the extant authorisation framework under FEMA to improve further the ease with which foreign exchange transactions can be undertaken by users, and at the same time strengthen the regulatory oversight/framework governing APs," the RBI's draft licencing framework guidelines say.

The RBI says the objective is to achieve operational efficiency in the delivery of foreign exchange facilities to common persons, tourists and businesses while maintaining appropriate safeguards.

The central bank's latest decision stems from the progressive liberalisation under FEMA, increasing integration of the Indian economy with the global economy, digitisation of payment systems, and evolving institutional structure.

The Licensing framework for Authorised Persons (APs) issued under FEMA, 1999, was last reviewed in March 2006.

“The (current) review will focus on rationalising the authorisation framework for money changers in view of the widespread availability of banking services to the public and look at alternate models for facilitating foreign exchange-related services,” says the central bank.

The new framework will also improve the scope of services offered by AD-Category II entities and review the regulatory framework for APs.

The RBI has proposed to introduce a new category of money changers who may conduct money-changing business through an agency model by becoming forex correspondents (FxCs) of category-I and category-II authorised entities. Such entities will not be required to seek authorisation from the RBI.

On perpetual authorisation, the RBI says to reduce the regulatory burden and enhance the ease of doing business, it is proposed to renew an existing authorisation as an AD Category-II on a perpetual basis.

In terms of transition, the RBI says existing full-fledged money changers may approach it for upgradation of authorisation as AD Category-II or an existing AD Category-II may approach it for permanent authorisation two months prior to the date of expiry of the existing authorisation. "If the entity approaches the Reserve Bank for renewal of its existing authorisation, such renewal will be considered only up till a date not beyond two years from the date when the new framework comes into force."

The RBI has also proposed to allow AD Category-II entities to additionally facilitate trade-related transactions up to a value of ₹15 lakh (per transaction).

To increase the reach of foreign exchange services, the RBI has proposed a scheme, i.e., FCS. It will be based on a principal-agency model where AD Category-I or AD Category-II authorised persons will act as the principal for the FxCs. Accordingly, the FxCs would enter into agency agreements with an AD Category-I or AD Category-II authorised persons under the FCS.

Feedback on the draft framework is invited from all stakeholders by January 31, 2024.

Notably, the RBI issues authorisation in the form of a licence to authorised persons, which includes authorised entities and full-fledged money changers (FFMCs). Authorisation is also granted to select institutions to carry out specific foreign exchange transactions related to their business activities. There are a total of 101 AD Category-1 entities, and a total of 75 AD category-11 entities 1,763 AD Category-111 entities in India.