Draft Licensing Framework for Authorised Persons (APs) under FEMA

Reserve Bank of India (RBI) has issued draft licensing framework for Authorised Persons (APs) under FEMA.

Who can act as Authorised Persons (APs) under FEMA?

As per Section 3(a) of Foreign Exchange Management Act, 1999 (FEMA, 1999), only authorised person shall deal in or transfer any foreign exchange or foreign security to any person.

In terms of section 10(1) of FEMA, 1999, Reserve Bank of India (RBI) may, on an application made to it in this behalf, authorise any person to be known as authorised person to deal in foreign exchange or in foreign securities, as an authorised dealer, money changer or off-shore banking unit or in any other manner as it deems fit.

What are the guidelines for transition of existing authorised entities?

The transition of the existing authorised entities shall be as under –

Extant Authorised Person	Transition	Period of transition
Full-Fledged Money Changers (FFMCs) having average annual forex turnover for the last 2 financial years of ₹50 crore or more	Either upgrade its licence to AD Category-II subject to meeting revised eligibility norms or voluntarily convert to FxC in accordance with the Forex Correspondent Scheme after surrendering the existing licence.	By the date of the expiry of its existing authorisation or within 2 years from the date the new framework comes into force, whichever is later.
Any FFMC other than mentioned above	Convert to FxC in accordance with Forex Correspondent Scheme.
AD Category-II having average annual forex turnover for the last 2 financial years of ₹50 crore or more	Either obtain a permanent authorisation as AD Category-II subject to meeting revised eligibility norms or voluntarily convert to FxC in accordance with Forex Correspondent Scheme after surrendering existing licence.
AD Category-II other than mentioned above	Convert to FxC in accordance with Forex Correspondent Scheme.

What is Forex Correspondent Scheme (FCS)?

• It is proposed to introduce a new category of money changers who may conduct money changing business through an agency model by becoming Forex Correspondents (FxCs) of Category-I and Category-II Authorised Dealers. 
• Such entities shall not be required to seek authorisation from RBI.
• The following entities shall be eligible to function as an FxC –
• An existing FFMC or AD Category-II on surrender or after expiry of its authorisation.
• An NBFC or a bank after obtaining necessary permission from RBI.
• A company as defined under the Companies Act 2013.
• Activities permitted to be undertaken by FxCs include –
• Purchase / sale of foreign currency notes / travellers’ cheques for foreign private and business travel.
• Distribution of forex prepaid cards.
• The principal AD may also appoint its FxC as its MTSS Sub Agent under the Money Transfer Service Scheme (MTSS).
• At any given instance, an FxC entity shall not have forex correspondent relationship with more than one principal AD.
• FxC shall deal in foreign exchange only with public or with its principal AD.

What is revised categorisation of authorised persons?

Authorised Dealer Category-I
Extant	Proposed
Eligible Entities
Commercial Banks, State Co-op Banks, Urban Co-op Banks, Small Finance Banks	A bank including a foreign bank meeting the criteria laid down by RBI.
Permitted Activities – No change
All current and capital account transactions permissible under FEMA.

Authorised Dealer Category-II
Extant	Proposed
Eligible Entities
Small Finance Banks Payments Banks Urban Co-op Banks Regional Rural Banks Investment and Credit Companies (NDSI-NBFC-ICC) Upgraded FFMCs	A bank including a foreign bank or NDSI-NBFC-ICC in India meeting the criteria laid down by RBI. An existing FFMC or an AD Category III or an FxC having a satisfactory track record and an average annual forex turnover for the last 2 financial years of at least ₹50 crore subject to meeting the revised eligibility criteria.
Permitted Activities
Specified non-trade related current account transactions and activities permitted to FFMCs. Remittance for gift and family maintenance not permitted.	Any current account transaction other than gift or maintenance of relatives. In case of a trade-related transaction, the amount shall not exceed ₹15 lakh per transaction. Issue forex prepaid cards to residents undertaking foreign travel and settlement in respect of such cards shall be made through an AD Category-I bank.

Authorised Dealer Category-III
Extant	Proposed
Eligible Entities and Permitted Activities
Select financial and other institutions permitted to undertake transactions incidental to the foreign exchange activities undertaken by these institutions. e.g., - Providing finance for overseas investment to Indian companies by Exim Bank. - Factoring services by NBFC-Factors. - Forex activities by Standalone Primary Dealers (SPDs).	Select institutions permitted to undertake forex transactions incidental to the activities undertaken by these institutions. An entity that facilitates a current account transaction permissible under FEMA only in tie up with an AD Category-I bank and which does not otherwise deal in foreign exchange shall facilitate fund transfers only from one bank account to another bank account and shall include – Remittance Service Provider (RSP) duly licensed by a regulator of the destination jurisdictions to facilitate remittances to beneficiaries in such jurisdictions. Only outward remittances towards current account transactions other than trade, gift and maintenance of relatives abroad not exceeding ₹25 lakh per transaction shall be permissible under this arrangement. An entity desirous of offering innovative products and services in areas relating to cross border trade and remittances.

What are eligibility norms for AD Category-II and AD Category-III entities?

An applicant (other than a bank or NDSI-NBFC-ICC regulated by RBI) seeking upgradation or renewal of an existing authorisation as AD Category-II, or an applicant (other than select institutions permitted to undertake forex transactions incidental to their activities) seeking fresh authorisation as AD Category III must fulfil the criteria set out below.

• The applicant must be a ‘company’ as defined under the Companies Act 2013 / Registration of Companies (Sikkim) Act, 1961 and its Memorandum of Association (MoA) shall include the foreign exchange related activity for which the authorisation is being sought.
• The applicant shall comply with the Fit and Proper Criteria.
• The applicant shall have a minimum net worth as mentioned below based upon its latest audited balance sheet.

Type of authorisation	Net worth requirement
AD Category-II	₹10 crores
AD Category-III	₹2 crores

• The applicant shall commence operations within 6 months from the date of issuance of authorisation or approval for a place of business. In case of failure to commence operations within 6 months, the entity can seek extension in advance for a maximum period of another 6 months after which the authorisation shall lapse. 

What are transaction limits?

Transaction limits for money changing business i.e., purchase and sale of foreign currency notes, coins and travellers’ cheques by AP / FxC from / to public shall be as under –

Purchase of foreign currency by AP/FxC
Extant limit	Proposed limit
Against payment in INR cash Up to USD 1,000 or its equivalent per transaction for residents. Up to USD 3,000 or its equivalent per transaction for foreign visitors / NRIs.	For foreign currency encashment, INR payment up to ₹50,000 per person may be made in the form of cash by an AP / FxC. Beyond this limit, payment shall have to be made through banking channel / prepaid instruments.
Against payment in INR through banking channel / cards No limit Where the foreign currency was brought in by declaring on Currency Declaration Form (CDF), the production of declaration in CDF should invariably be insisted upon.	A copy of the declaration in CDF shall be obtained from the customer where such declaration is required to be made on arrival in India.

Sale of foreign currency by AP / FxC against receipt of INR
Extant limit	Proposed limit
Foreign exchange in the form of foreign currency notes and coins may be sold up to the limit indicated below – Travellers proceeding to countries other than Iraq, Libya, Islamic Republic of Iran, Russian Federation, and other Republics of Commonwealth of Independent States - not exceeding USD 3000 per visit or its equivalent. Travellers proceeding to Iraq or Libya - not exceeding USD 5000 per visit or its equivalent. Travellers proceeding to Islamic Republic of Iran, Russian Federation, and other Republics of Commonwealth of Independent States - full exchange may be released. Travellers proceeding for Haj / Umrah pilgrimage- full amount of entitlement in cash or up to the cash limit as specified by the Haj Committee of India, may be released. Authorised Persons may accept payment in cash below Rs.50,000/- against sale of foreign exchange. Authorised Persons may convert into foreign currency, unspent Indian currency held by non-residents at the time of their departure from India, provided a valid Encashment Certificate is produced. Authorised Persons may convert unspent Indian currency up to Rs.10,000 in the possession of non-residents if, for bona fide reasons, the person is unable to produce an Encashment Certificate after ensuring that the departure is scheduled to take place within the following 7 days. Authorised Persons may provide facility for reconversion of Indian Rupees to the extent of Rs.50,000/- to foreign tourists (not NRIs) against ATM Receipts after ensuring that the departure is scheduled to take place within the following 7 days.	Sale of foreign exchange in the form of foreign currency notes and coins to a traveller shall not exceed the equivalent of ₹4 lakhs per foreign trip irrespective of the country of visit. Beyond this limit, foreign exchange shall be sold only in non-cash forms such as travellers’ cheques, forex cards, debit cards, credit cards etc. For sale of any foreign currency in connection with travel to a foreign country, receipt of an amount exceeding ₹50,000 per foreign trip shall necessarily be through banking channel / prepaid instruments, and not cash. A non-resident / foreign visitor may, subject to submission of necessary evidence / encashment certificate / ATM receipts, reconvert unutilised INR cash to foreign currency.

What are other guidelines?

• Presently, under the Money Transfer Service Scheme (MTSS), prior approval from RBI is needed for every tie-up arrangement by an MTSS Indian Agent with an Overseas Principal. Under the revised framework, AD Category-I and AD Category-II may function as ‘MTSS Indian Agent’ and report the tie-up arrangement to RBI.
• In case of an application for a fresh authorisation, RBI shall issue a temporary authorisation initially for 2 years.
• Authorisation shall be granted by RBI on a perpetual basis subject to the applicant making an application at least 3 months before the expiry of the temporary authorisation and after satisfying the eligibility criteria.
• The application from the entities mentioned below will not be considered by RBI during the Cooling Period, which shall be 3 years from the date of revocation or voluntary surrender or rejection of application.
• An entity whose authorisation is revoked for any reason other than the inability to meet the net worth or turnover criteria.
• An entity which has voluntarily surrendered its authorisation for any reason.
• An entity whose application for authorisation has been rejected by RBI for any reason other than the inability to meet the net worth or turnover criteria.
• Any entity where, one or more of the promoters having significant influence in any of the entities listed above.
• The cooling period shall not apply in case of an application for authorisation returned for any reason but not rejected by RBI.

References

Reserve Bank of India. (2023, December 26). 'Draft Licensing Framework for Authorised Persons (APs) under FEMA'. Retrieved from https://www.rbi.org.in/scripts/bs_viewcontent.aspx?Id=4357

Reserve Bank of India. (2023, December 26). 'Rationalisation of Licensing Framework for Authorised Persons (APs) under Foreign Exchange Management Act (FEMA), 1999'. Retrieved from https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=56993

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