Updated Instructions on Money Changing Activities: Key Changes and Compliance Requirements
The Reserve Bank of India (RBI) has issued an updated circular regarding the FED Master Direction No.3 /2015-16 dated January 01, 2016, concerning money-changing activities. This directive, updated periodically, outlines the requirements and obligations for Full Fledged Money Changers (FFMCs) and non-bank Authorised Dealers (ADs) Category-II.
Current Guidelines for FFMCs and ADs Category-II
Under existing instructions, FFMCs and non-bank ADs Category-II are permitted to meet their routine business needs for foreign currency notes by purchasing them from other FFMCs and Authorised Dealers in India. These entities must also maintain their foreign currency balances at reasonable levels to prevent the accumulation of idle balances, which can affect liquidity and operational efficiency.
New Requirements Effective July 1, 2024
From July 1, 2024, a significant change will take effect. FFMCs and non-bank ADs Category-II must ensure that at least 75% of the value of foreign currency notes they purchase from other FFMCs or ADs is sold to the public for permitted purposes on a quarterly basis. This measure aims to enhance the availability of foreign currency for public use and prevent hoarding. FFMCs and ADs Category-II are required to meticulously maintain records of their foreign currency sales and purchases, ensuring that these records are readily available for audit and inspection purposes.
Additionally, FFMCs and ADs selling foreign currency should verify the ‘sale to public’ requirement of the buying entities by requesting relevant data. This ensures transparency and compliance with the new regulations, facilitating smoother operations and adherence to the stipulated guidelines.
Annual Reporting Obligations
Furthermore, the updated directive mandates that FFMCs and non-bank ADs Category-II submit their annual audited balance sheet to the respective Regional Office of the Reserve Bank. This submission must include a certificate from their statutory auditors verifying the Net Owned Funds (NOF) as of the balance sheet date. The deadline for this submission is October 31 of the respective year, ensuring that the RBI has timely access to critical financial information for monitoring and regulatory purposes.
Legal Framework and Compliance
The directions outlined in the circular are issued under Section 10(4) and Section 11(1) of the Foreign Exchange Management Act, 1999 (FEMA). These provisions empower the RBI to regulate foreign exchange transactions and enforce compliance with the prescribed norms. It is important to note that these directions are in addition to any other permissions or approvals that may be required under other applicable laws.
The RBI has emphasized that the FED Master Direction No.3 is being updated to incorporate these changes, reflecting the evolving regulatory landscape and the need for enhanced oversight in money-changing activities.
Conclusion
These updated instructions aim to ensure that FFMCs and non-bank ADs Category-II operate within a robust regulatory framework, promoting transparency and efficiency in foreign currency transactions. Compliance with these directives is crucial for maintaining orderly and compliant money-changing operations in India.
