Full Fledged Money Changers (FFMC) License

Full Fledged Money Changers (FFMC) License

An entity willing to deal in foreign exchange shall obtain FFMC License from RBI. FFMC is abbreviated for Full Fledged Money Changer. This license allows the holder to purchase the Foreign Exchange from non-residents visiting India and residents and to sell it for specified purposes viz. private and business travel abroad.

As per Section 10 of Foreign Exchange Management Act, 1999 only an AMC (Authorised Money Changer) can deal in foreign exchange and money changing activities.

An FFMC License contains various instructions on money changing activities including authorisation and functioning of Full Fledged Money Changers (FFMCs), non-bank Authorised Dealers Category-II and franchisees of Authorised Persons as well as the conduct of foreign exchange transactions with their customers/constituents.

The main objective to allow FFMCs to do business is to widen the access to foreign exchange facilities to residents and tourists while ensuring efficient customer services through competition.

Authorised Persons under Foreign Exchange Management Act, 1999 and their categories.

Authorised Person means an Authorised dealer, money changer, offshore banking unit or any other person authorised under sub-section (1) of section 10 to deal in foreign exchange or foreign securities.

Currently, RBI issues the authorisation to the following:

1. Authorised Dealer(AD) Category-I: an entity authorised to carry out all permissible current account an capital account transactions as per the directions issued from time to time.

2. Authorised Dealer(AD) Category-II: an entity authorised to carry out specified non-trade related current account transactions, all the activities, permitted to Full Fledged money Changers and any other activity as decided by the RBI.

3. Authorised Dealer(AD) Category-llI: an entity authorised to carry out specified foreign exchange transactions incidental to their business/activities.

4. Full Fledged Money Changers (FFMC): a money changer authorised to undertake purchase of foreign exchange and sale of foreign exchange for specified purposes viz. private and business travel abroad.

Who can carry out the business of money changing?

Money changing business activities can be undertaken by entities authorised by the Reserve Bank of India under Section 10 for Foreign Exchange Management Act, 1999. No person shall carry on the business of money changing unless he is in possession of a valid license issued by the Apex Bank i.e., RBI. Any person found to be carrying on the money changing business without a valid license shall be penalised under the Act ibid.

Eligibility Criteria for applying FFMC License?

1. The applicant shall be a company registered under Companies Act, 1956 / Companies Act, 2013/ Registration of Companies (Sikkim) Act, 1961; and

2. It shall have a minimum Net Owned Funds (NOF) of Rs. 25 Lakhs to apply for a single branch FFMC License and Rs. 50 Lakhs to apply for a multiple branch FFMC License.

3. The objects of the Memorandum of Association (MOA) of applicant entity must contain a provision for undertaking money-changing activities.

4. No proceedings have been initiated by/ are pending with Department of Enforcement (DOE) / Department of Revenue Intelligence (DRI) against the applicant company or its directors.

What is Net Owned Funds (NOF)?

An applicant entity shall calculate its Net Owned Funds as follows:

Net Owned Funds:- Owned funds minus the amount of investments in shares of its subsidiaries, companies in the same group, all (other) non-banking financial companies as also the book value of debentures, bonds, outstanding loans and advances made to and deposits with its subsidiaries and companies in the same group in excess of 10 per cent of the Owned funds.

Owned Funds:- (Paid-up Equity Capital + Free reserves + Credit balance in Profit & Loss A/c) minus (Accumulated balance of loss, Deferred revenue expenditure and Other intangible assets)

The prescribed minimum NOF is required to be maintained by the applicant entity on an ongoing basis.

Procedure of submitting an application for FFMC License?

Applicant entity shall submit an Application in the prescribed Form to the respective Regional Office of the Foreign Exchange Department of the Reserve Bank of India under whose jurisdiction the registered office of the applicant falls.

Time frame within which a newly licensed FFMC shall commence its operations?

A newly licensed FFMC entity shall commence its business operations within 6 months from the date of issuance of license. The entity shall submit to Reserve Bank a copy of the registration under Shops & Establishment Act or any other documentary evidence such as rent receipt, copy of lease agreement, etc. before commencement of business.

Time period within which an application for licence renewal shall be filed?

An application from an FFMC/non-bank AD Category-II for renewal of licence shall be made two months before expiry of the licence or such other period as the Reserve Bank may prescribe. Where an application for licence renewal is submitted as above, the licence shall continue in force until the date on which the licence is renewed or the application is rejected, as the case may be. No application from an FFMC/non-bank AD Category-II for renewal of licence shall be made after expiry of the licence.

Circumstances under which a FFMC License can be revoked by RBI?

An authorisation granted under Section 10(1) of FEMA 1999 may be revoked by the Reserve Bank at any time if the Reserve Bank is satisfied that –

1. it is in public interest so to do; or

2. the authorised person has failed to comply with the condition subject to which the authorisation was granted or has contravened any of the provisions of the Act or any rule, regulation, notification, direction or order made thereunder.

Reserve Bank also reserves the right to revoke the authorisation of any of the offices of the authorised person for infringement of any statutory or regulatory provision. The Reserve Bank may at any time vary or revoke any of the existing conditions of an authorisation/licence or impose new conditions.

Money changing facilities available in India.

Currently, the conversion of foreign currency or travellers’ cheques designated in foreign currency into Indian Rupees and vice versa is possible through AD Category-I banks, ADs Category-II and Full Fledged Money Changers (FFMCs). Further, AD Category-I banks, ADs Category-II and FFMCs may appoint franchisees (also known as agents) to undertake purchase of foreign currency.

What is the objective of the Scheme for appointing Franchisees by AD Category Banks, ADs Category-II and FFMCs for undertaking restricted money changing activities?

The objective of the Scheme is to provide easier foreign exchange conversion facilities for travellers and tourists, including Non Resident Indians (NRIs), by enlarging the network of money changing facilities in the country. It is expected that the facility of Franchisee arrangement will enable AD Category-I banks, ADs Category-II and FFMCs to provide such facilities at all tourist centres and major cities during extended hours and on holidays.

What are the salient features of Franchisee Agreement?

Under the Scheme, the Reserve Bank permits ADs Category – I , ADs Category – II and FFMCs to enter into agency or franchisee agreements at their option for the purpose of carrying restricted money changing business i.e. conversion of foreign currency notes, coins or travellers’ cheques into Indian Rupees.

A franchisee can be any entity which has a place of business and a minimum Net Owned Funds of Rs.10 lakh. Franchisees can undertake only restricted money changing business.

An AD Category-I Bank / AD Category-II / FFMC, as the franchiser, is free to decide on the tenor of the arrangement as also the commission or fee through mutual agreement with the franchisee. The Agency / Franchisee agreement to be entered into should include the following salient features:

The franchisees should display the names of their franchisers, exchange rates and that they are authorised only to purchase foreign currency, prominently in their offices. Exchange Rate for conversion of foreign currency into Rupees should be the same or close to the daily exchange rate charged by the AD Category – I Banks / ADs Category – II / FFMC at its branches.

The foreign currency purchased by the franchisee should be surrendered only to its franchiser within 7 working days from the date of purchase.

The maintenance of proper record of transactions by the franchisee.

The on-site inspection of the franchisee by the franchiser should be conducted at least once a year.

Procedure of submission of application by AD Category – I bank/ AD Category – II/ FFMC to the Reserve Bank for appointment of franchisees?

An AD Category – I Bank / AD Category – II/ FFMC should apply to the respective Regional Office of the Reserve Bank, in Form RMC-F (as given in Part I: Annex-II of the FED Master Direction No.18/2015-16 on Reporting under FEMA 1999) for appointment of franchisees under this Scheme. The application should be accompanied by a declaration that while selecting the franchisees, adequate due diligence has been carried out and that such entities have undertaken to comply with all the provisions of the franchising agreement and prevailing Reserve Bank regulations regarding money changing. Approval shall be granted by the Reserve Bank for the first franchisee arrangement. Thereafter, as and when new franchisee agreements are entered into, these would have to be reported to the Reserve Bank in Form RMC-F on a post-facto basis along with similar declaration as indicated above.

Checklist for due diligence of Franchisees to be conducted by AD Category – I banks/ AD Category – II/ FFMCs before appointing them.

A franchiser, i.e. AD Category–I Bank/ AD Category–II / FFMC should undertake the following minimum checks while conducting due diligence of its franchisees:

• existing business activities of the franchisee/ its position in the area
• minimum Net Owned Funds of the franchisee
• Shops & Establishments / other applicable municipal certification in favour of the franchisee
• verification of physical existence of location of the franchisee, where restricted money changing activities will be conducted
• conduct certificate of the franchisee from the local police authorities (certified copy of Memorandum and Articles of Association and Certificate of Incorporation in respect of incorporated entities)

Note: Obtaining of Conduct Certificate of the franchisee from the local police authorities is optional for the franchisers. However, the franchisers may take due care to avoid appointing individuals/ entities as franchisees who have cases / proceedings initiated / pending against them by any law enforcing agencies.

• declaration regarding past criminal case, if any, cases initiated / pending against the franchisee or its directors / partners by any law enforcing agency, if any
• PAN Card of the franchisee and its directors / partners
• photographs of the directors / partners and the key persons of franchisee

The above checks should be done on a regular basis, at least once in a year. The franchiser should obtain from the franchisees proper documentary evidence confirming the location of the franchisees in addition to personal visits to the site. The franchiser should also obtain a Chartered Accountant’s certificate confirming the maintenance of minimum Net Owned Funds of the franchisee, i.e., Rs.10 lakh on an ongoing basis.

What are selection criteria for centres?

The franchiser, i.e. AD Category–I Bank / AD Category–II / FFMC may appoint franchisees within a distance of 100 kilometres from their controlling branches concerned.

However, this distance criterion is relaxed in case of a recognised group/ chain of hotels appointed as franchisees, provided the headquarters of the group/ chain of hotels falls within a distance of 100 kilometres of the controlling branch of the franchiser concerned.

Further, in case of areas declared as hilly areas (as defined by the respective State Governments/ Union Territories) and the North-Eastern States, the distance restriction given in point (i) above is not applicable.

Guidelines on provision for training of franchisees.

For proper operations and maintenance of records by franchisees, the franchiser is supposed to impart training to the franchisees.

Guidelines in respect of Reporting, Audit and Inspection of franchisees?

The franchisers, i.e. ADs Category–I Banks / ADs Category–II / FFMCs are required to put in place adequate arrangements for reporting of transactions by the franchisees to the franchisers on a regular basis (at least monthly). Regular spot audits of all locations of franchisees, at least once in six months, should be conducted by the franchiser. Such audits should involve a dedicated team and incognito visits should also be used to test the compliance level of the franchisees. A system of annual inspection of the books of the franchisees should also be put in place. The purpose of such inspection is to ensure that the money changing business is being carried out by the franchisees in conformity with the terms of the agreement and prevailing Reserve Bank guidelines and that necessary records are being maintained by the franchisees.

Does a franchisee need to comply with KYC/AML/CFT Guidelines?

Franchisees are required to comply with the AML / KYC/ CFT guidelines, as applicable to ADs Category–I Banks / ADs Category – II / FFMCs.

Can forex pre-paid cards be issued by Authorised Dealers Category-II?

Authorised Dealers Category-II can issue forex pre-paid cards to residents travelling on private/business visit abroad, subject to adherence to KYC/AML/CFT requirements. However, settlement in respect of forex pre-paid cards has to be effected through AD Category-I banks.

Usability of forex pre-paid cards at Duty Free Shops located at International Airports in India?

Forex pre-paid cards can be used in the same manner as foreign currency notes / travellers’ cheques at Duty Free Shops located at International Airports in India.