The RBI is planning to introduce a new category of money changers who can conduct money changing business through an agency model. Under the model, the money changers can become Forex Correspondents (FxCs) of Category-I and Category-II Authorised Dealers (ADs).
This move is aimed at improving the ease with which foreign exchange transactions can be undertaken by users. Such entities will not be required to seek authorisation from the Reserve Bank, RBI said in its “Draft Licensing Framework for Authorised Persons (APs) under the FEMA (Foreign Exchange Management Act).
Money changers provide access to foreign exchange facilities to residents and tourists. ADs are entities authorised by the RBI to deal in foreign exchange.
Forex Correspondent Scheme
“With the objective of increasing the reach of foreign exchange services, it is proposed to introduce a scheme, i.e., Forex Correspondent Scheme (FCS), which will be based on a principal-agency model where AD Category-I or AD Category-II will act as the principal for the FxCs,” per the Draft.
Accordingly, the FxCs would enter into agency agreements with a AD Category-I or AD Category-II under the FCS.
The Draft is the result of a review of the extant authorisation framework under FEMA to further improve the ease with which foreign exchange transactions can be undertaken by users and at the same time strengthen the regulatory oversight/framework governing APs (Authorised Persons). Currently, the RBI issues authorisation in the form of a licence to Authorised Persons (APs), which includes authorised dealers and Full-Fledged Money Changers (FFMCs).
Under FEMA, the RBI may, on an application made to it, authorise any person to be known as authorised person (AP) to deal in foreign exchange or in foreign securities, as an authorised dealer (AD), money changer or off-shore banking unit or in any other manner as it deems fit.’
Perpetual authorisation
RBI is also proposing to renew an existing authorisation as an AD Category-II on a perpetual basis, subject to meeting the revised eligibility criteria laid down in the new framework. This is to reduce the regulatory burden as also to enhance the ease of doing business
Presently, the authorisation to entities desirous of operating as AD Category-II is granted initially for a period of one year, which is subsequently renewed for a period between 1 to 5 years.
RBI is also considering allowing Authorised Dealer (AD) Category-II entities to additionally facilitate trade-related transactions up to a value of ₹15 lakh (per transaction).
This is to expand the scope of business and to encourage innovation/competition leading to better consumer experience.