The Foreign Exchange Management Act of 1999 holds the authority over foreign exchange matters. Authorised Dealers are designated under this Act and possess the authority to conduct foreign exchange and money-changing transactions. It’s essential to note that anyone wishing to operate as an FFMC must acquire the necessary FFMC Licence. The regulatory framework for FFMC licence is comprehensively outlined in section 10(1) of the FEMA Act, 1999. This blog shall cover in detail the regulatory framework for FFMC licence, which pertains to engaging in foreign exchange activities.
Understanding the FFMC Licence
Before going into the Regulatory Framework for FFMC Licence, let’s familiarise ourselves with essential information about the FFMC licence.
FFMC, an acronym for Full Fledged Money Changer, operates under the regulatory provisions outlined in Section 10(1) of the Foreign Exchange Management Act and is overseen by the Reserve Bank of India. For individuals or firms aspiring to engage in foreign exchange activities within India, obtaining RBI authorisation is imperative. Engaging in such business without the necessary authorisation constitutes a violation of the law. Entities sanctioned by the RBI to conduct foreign exchange operations are recognised as FFMCs.
Permitted Business Activities for FFMC under the Regulatory Framework for FFMC Licence
Full Fledged Money Changers are authorised to engage in specific business activities as outlined within the regulatory framework for FFMC. The permitted business activities for FFMCs under the regulatory framework for FFMC licence include:
1. Franchise for Money Changing Activities:
FFMCs have the ability to take up a franchise for money changing activities, allowing for wider market penetration and service offerings.
2. Conversion of Foreign Currency Notes to Indian Rupees:
FFMCs are authorised to convert foreign currency notes into Indian Rupees, facilitating currency exchange services for customers.
3. Provision of Travellers Cheques:
FFMCs are permitted to provide travellers cheques, offering a secure and convenient form of currency for travellers.
4. Receipt of Money through Normal Banking Channels:
FFMCs can receive money through regular banking channels, enabling smooth transactions and financial operations.
5. Purchase of Coins and Foreign Currency:
FFMCs are allowed to purchase coins and foreign currency from both Non-Resident Indians (NRIs) and residents, contributing to their currency exchange operations.
What is the Regulatory Framework for FFMC Licence in India?
Business owners aiming to obtain an FFMC Licence must familiarise themselves with the key attributes outlined in the regulatory framework for FFMC licence. When dealing with this licence, it must be remembered that the regulatory framework for FFMC licence encompasses vital details concerning the procedure for obtaining a new FFMC licence, a pivotal step in acquiring authorisation for FFMC operations. Additionally, it elucidates essential information regarding FFMC licence renewal, the appointment of agents/franchisees, Know Your Customer (KYC)/Anti Money Laundering requirements, and Branch Licencing procedures.
Also, the Regulatory Framework for FFMC Licence firmly opposes terrorist funding and categorises it as a punishable offense. The Reserve Bank of India has laid out comprehensive guidelines in this regard, applicable to all FFMC entities, to ensure strict adherence to these directives.
RBI’s Classification of Authorised Dealers
In accordance with the guidelines set by the RBI, authorised dealers are categorised into three distinct categories based on their capabilities and functions:
Authorised Dealers Category-I
Authorised Dealers Category-I comprises financial institutions with the capacity to execute both current and capital account transactions. The entities falling under this category include:
1. Commercial Banks: These are mainstream banks that can perform a wide range of financial transactions, including foreign exchange operations.
2. State Co-operative Banks: State-level cooperative banks, authorised to engage in foreign exchange transactions.
3. Urban Co-operative Banks: Urban co-operative banks that have the capability to conduct foreign exchange transactions as part of their services.
Authorised Dealers Category-II
Authorised Dealers Category-II includes entities, primarily Foreign Exchange Money Changers, authorised to handle non-trade related current account transactions. Entities categorised under this section encompass:
1. Upgraded FFMCs: These FFMCs have been granted authorisation to carry out foreign exchange transactions related to current accounts.
2. Cooperative Banks: Certain cooperative banks are eligible to operate as Category-II authorised dealers in foreign exchange.
3. Regional Rural Banks (RRBs): Regional Rural Banks are also classified as Authorised Dealers Category-II with limited foreign exchange transaction capabilities.
Authorised Dealers Category-III
Authorised Dealers Category-III encompasses a diverse group of entities, including those registered under the Companies Registration Act of 2013 and various financial institutions. Under this category, authorised dealers are entitled to:
1. Process Travel-Related Cheques or Coins in Indian Currency: Authorised dealers in this category can handle transactions involving travel-related cheques and Indian currency coins.
2. Conduct Forex Exchange Services: Entities falling under Authorised Dealers Category-III are permitted to provide a wide range of foreign exchange services to their clients.
Eligibility Criteria for Compliance with the Regulatory Framework for FFMC Licence
To be recognised as an approved FFMC, specific eligibility criteria must be satisfied. This includes:
1. Company Registration and Compliance:
The company must operate as a registered entity under the Registrar of Companies and adhere to the provisions outlined in the Companies Act, 2013.
2. Minimum Net Owner Funds:
a. For companies operating as a single entity without branches, the net owner funds should not be less than INR 25 lakhs.
b. In the case of companies with multiple branches, the net owner funds should amount to a minimum of INR 50 lakhs.
3. Clear Legal Record:
The company must not have any ongoing or pending cases related to fraud or any other offense involving the Department of Revenue Intelligence or the Department of Enforcement.
4. Incorporated Object Clause:
The object clause of the company’s memorandum of association must explicitly detail and outline obligations concerning money changing activities.
Documents Required for FFMC Licence
To adhere to the Regulatory Framework for FFMC licence, the following documents need to be submitted for thorough review and compliance.
1. Certificate of Incorporation:
Document confirming the company’s legal incorporation status.
2. Memorandum and Articles of Association:
Legal documents outlining the objectives and rules governing the business.
3. Latest Accounts:
Audited accounts from the Statutory Auditors certifying the net owned funds as of the application date. This should include the last audited balance sheet and Profit & Loss Account for the past three years.
4. Confidential Report from the Bank:
A confidential report obtained from a bank.
5. Declaration of No Proceedings:
A declaration stating that no proceedings are initiated or pending against the company or its directors with authorities such as Directorate of Enforcement or Directorate of Revenue Intelligence, and that no criminal cases are instituted against the company or its directors.
6. KYC Declaration:
A statement affirming compliance with KYC/AML/CFT policies as per RBI guidelines, specifically adhering to the Know Your Customer Direction, 2016.
7. Details of Sister Concerns:
Information regarding associated concerns operating in the financial sector, like NBFCs.
8. Certified Copy of Board Resolution:
A certified copy of the board resolution authorising the company to carry out the business of FFMC.
Registration Procedure for FFMC Licence
The registration procedure for FFMC licence is as mentioned below:
1. Application
The Regulatory Framework of FFMC licence commences with the submission of an application. The applicant is required to submit the application in the prescribed form as specified in the FEMA, ant to the regional office of the RBI within the jurisdiction of the applicant’s registered office.
2. Fulfilment of Fit and Proper Criterion
Applicants must meet the “fit and proper” criterion, signifying the absence of any ongoing litigation or proceedings with the Department of Revenue or Department of Enforcement.
3. Review of Director Fit and Proper Criterion
A thorough review of the Director’s application is conducted to ensure compliance with RBI’s fit and proper requirements.
4. Certificate of Incorporation
Upon satisfaction with the application, the RBI issues the Certificate of Incorporation and Licence to the applicant, permitting them to engage in foreign exchange operations.
5. Empower Committee Clearance
Applicants need to obtain clearance from the empowering committee of the RBI.
Final Thoughts
The Regulatory Framework for FFMC Licence is a structured guideline ensuring compliance and operation in the foreign exchange domain. It mandates adherence to eligibility criteria encompassing net owner funds, legal compliance, and a clean record. Essential documents like Certificate of Incorporation, financial statements, and declarations are crucial for approval. The framework authorises FFMCs to engage in activities such as currency conversion, issuance of traveller’s cheques, and receipt of funds through standard banking channels.
Additionally, the framework enables FFMCs to undertake franchise opportunities and acquire foreign currency from residents and NRIs. These guidelines collectively facilitate a regulated and secure environment for FFMCs to conduct authorised business operations.
