The Reserve Bank of India suggested draft rules to rationalize the authorisation of money changers in light of the extensive availability of banking services to the general people, as well as to investigate alternate models for enabling foreign exchange-related activities.
The RBI has evaluated the existing authorisation system under FEMA to increase the simplicity with which users can conduct foreign exchange transactions while strengthening the regulatory oversight/framework controlling authorised people.
This is owing to the faster universal reach of financial services over the last two decades as a result of financial inclusion programs, increasing integration of the Indian economy with the global economy, digitisation of payment systems, evolving institutional structure, and so on. The RBI has proposed renewing an existing authorisation as an AD category-II on a perpetual basis to decrease the regulatory burden and improve the ease of doing business.Authorised dealers in Category II can provide currency pre-paid cards to residents travelling on private or business trips overseas, subject to KYC/AML/CFT procedures.
However, settlement for forex pre-paid cards must be handled by AD Category-I banks. It has also been proposed that an existing full-fledged money changer (FFMC) may apply to the regulator for an upgrade of authorisation to AD Category-II, or that an existing AD Category-II may apply to the Reserve Bank for permanent authorisation two months before the expiry of the existing authorisation, subject to meeting the revised eligibility criteria.
The planned forex correspondent will be built on a principal-agency model, with AD Category-I or AD Category-II acting as the principal for the FxCs, to expand the reach of foreign exchange services. The FxC, acting as the primary AD’s agent, will not require RBI approval under FEMA requirements. The transactions carried out by the FxCs on behalf of the AD will be recorded in the major AD’s books.