Forex Money Changers are entities authorised by the Reserve Bank of India to conduct money changing activities within India. They play a very major role in purchasing foreign exchange from individuals arriving in the country and selling it for specific purposes say for converting foreign currency to Indian rupees and also the vice versa. Engaging in forex trading activities without a valid FFMC licence issued by the RBI is strictly prohibited and so the individuals who knowingly take part in such business without a valid licence may face penalties under the Act. In this article, we shall see the conditions that could lead to the revocation of FFMC Licence.
Revocation of FFMC Licence
Under Section 10(1) of FEMA 1999, licences issued to Full Fledged Money Changers can be revoked by the Reserve Bank of India under specific circumstances.
Grounds for Revocation of FFMC Licence
RBI possesses the power to cancel an FFMC licence if:
1. Public Interest: The revocation is deemed to be in the best interest of the public at large.
2. Breach of Licence Conditions: The licencee violates the conditions of upholding the integrity of the licence or fails to adhere to such standards for which the authorisation had been originally granted.
Major Reasons for Revocation of FFMC Licence
The reasons for revocation of FFMC licence in India are:
Improper Book-Keeping
One of the key pillars of FFMC operations is meticulous bookkeeping. Licence holders are obligated to maintain transparent and accurate transaction records. Routine audits are conducted to ensure compliance, and any deficiencies in this area can lead to the revocation of the licence. The Reserve Bank of India retains the authority to scrutinise FFMCs at any time, making it imperative for licence holders to uphold transaction integrity consistently.
Mismatching in Conversion Rates
FFMCs in India are responsible for providing foreign exchange services to Indian nationals, foreign visitors, and NRIs at prevailing exchange rates. Manipulating conversion rates for personal gain is a violation of the law and is subject to legal consequences. If RBI detects such irregularities, it may revoke the entity’s licence, thereby halting its operations.
Violation of Provisions
FFMCs must strictly adhere to the legal provisions governing their operations. Deviating from these norms is considered a violation, leading to potential fines and licence revocation. Several other factors may also contribute to the cancellation of an FFMC licence, including:
1. Absence of Concurrent Audit: Failure to implement a concurrent audit system within the organisation.
2. Irregular Foreign Exchange Rate Updates: Neglecting to regularly update foreign exchange rate charts as required by regulations.
3. Incomplete Core Member Records: Failing to maintain an accurate record of core members involved in the FFMC’s operations.
4. Non-Compliance with Payment Provisions: Disregarding payment provisions stipulated by law.
Ensuring strict adherence to these guidelines is crucial for FFMCs to maintain their licences and operate within the bounds of the law.
Best Practices to Avoid Revocation of FFMC Licence
Some of the best practises to avoid revocation of FFMC licence are:
Display Exchange Rate Chart
All FFMCs should prominently display an exchange rate chart accessible to the general public. This chart should provide information on the exchange rates for foreign currency notes and travellers’ cheques of major currencies. To ensure accuracy, the chart must be updated no later than 10:30 a.m. Indian time to reflect frequent currency rate fluctuations.
Prevent Accumulation of Counterfeit Currency Notes
In the event that an FFMC inadvertently accepts counterfeit foreign currency notes from customers, it should seek top management approval for their write-off. According to the law, the disposal limit for such currency is set at US $2000 per financial year. Crossing this threshold necessitates RBI authorisation to proceed further.
Implement Employee Training Protocols
FFMCs should establish comprehensive employee training programs covering policies and procedures related to money-changing activities. This training ensures transparency and integrity within the organisation, fostering compliance with regulatory requirements.
Avoid Excessive Foreign Currency Holdings
FFMCs are obligated to maintain an optimal level of foreign currencies as per legal requirements. Accumulating excess foreign currency can hinder the company’s performance in the long term. Cash transactions between FFMCs and authorised dealers should be minimised, adhering to the limits specified in RBI provisions for foreign currency notes transactions.
Conduct Transparent Financial Audits
FFMCs exceeding predefined thresholds should conduct thorough financial audits to ensure transparency. Records of these audits must be maintained for cross-referencing during regulatory scrutiny. Section 12(1) of FEMA 1999 empowers RBI officers to audit FFMCs’ financial affairs at any time. These officers possess the authority to investigate the books and accounts of FFMCs. Core members of the FFMC should cooperate with investigation officers in carrying out their activities. Non-compliance with these conditions may be considered a violation of the Act.
Final Thoughts
Adhering to best practices is paramount for FFMCs to maintain the integrity of their operations and avoid revocation of FFMC licences. FFMCs must prioritise transparency by displaying accurate exchange rate charts for public access, regularly updating them to reflect currency fluctuations, and preventing the accumulation of counterfeit currency notes beyond specified limits.
Furthermore, employee training programs, efficient management of foreign currency holdings, and diligent financial audits are essential to ensure compliance with regulatory requirements. Compliance not only safeguards the FFMC’s licence but also upholds the trust of customers and regulatory authorities. By diligently following these best practices, FFMCs can promote a culture of integrity and transparency, reducing the risk of licence revocation and contributing to a stable and trustworthy financial ecosystem.
