Summary: The Foreign Exchange Management Act, 1999 (FEMA) governs the licensing and regulation of entities engaging in money-changing activities in India. The Reserve Bank of India (RBI) grants authorizations under Section 10(1) of FEMA to entities categorized as Authorised Dealers Category-I, II, and III, along with Full Fledged Money Changers (FFMCs). FFMCs facilitate the purchase and sale of foreign exchange for travel purposes, business visits, and the issuance of forex prepaid cards. Entities seeking an FFMC license must meet specific criteria, including registration under the Companies Act and maintaining a minimum net-owned fund of INR 25 lakh for single-branch or INR 50 lakh for multiple-branch operations. Applications are submitted to the RBI’s regional office, and a fit-and-proper review of directors is conducted. Upon approval, FFMCs must comply with ongoing reporting, audit, and inspection requirements. They can appoint franchisees to broaden their service reach. However, entities must not have any pending criminal or civil cases and must commence operations within six months of obtaining the license. Non-compliance with FEMA provisions can lead to penalties or revocation of the license by the RBI. Also Read: FAQs on Money Changing Activities
BRIEF SUMMARY ON MONEY/FOREIGN EXCHANGER LICENSE:
ACTIVITIES OF FFMC
The following are the activities undertaken by a Full Fledged Money Changer (FFMC):
- Franchise Agreements: An FFMC may enter into a franchise agreement to carry out the restricted money-changing business, which primarily involves converting foreign currency notes, coins, or travellers’ cheques into Indian Rupees (INR).
- Currency Purchase: An FFMC or its franchisees may purchase foreign currency notes, coins, or travellers’ cheques from both residents and non-residents of India.
- Currency Sale: An FFMC may sell Indian Rupees (INR) to foreign tourists or visitors against international debit cards/credit cards and ensure prompt reimbursement via normal banking channels.
- Permissible Foreign Exchange Sales: FFMCs may sell foreign exchange for the following purposes:
- Business Visits
- Private Visits
- Forex Prepaid Cards
TYPES OF FFMC LICENSE
The following types of licenses are required to operate as a Full Fledged Money Changer (FFMC):
- Authorised Dealer Category-I Banks (AD Category–I)
- Authorised Dealers Category–II (ADs Category–II)
- Full Fledged Money Changers (FFMCs)
ELIGIBILITY TO OBTAIN FFMC LICENSE
The following criteria must be met to operate as a Full Fledged Money Changer (FFMC):
- The entity must be registered under the Companies Act, 20131956.
- The entity must have a minimum net-owned fund of INR 25 Lakhs for a single-branch license and INR 50 Lakhs for a multiple-branch license.
- The object clause of the Memorandum of Association must reflect the activity of money changing to be undertaken.
- There must be no pending civil or criminal cases against the entity with the Department of Revenue Intelligence.
- The entity must commence its business activity within six months from the issuance of the FFMC License and notify the Reserve Bank of India (RBI).
DOCUMENTS REQUIRED FOR FFMC LICENSE
The following documents are required to obtain an FFMC License:
- Copy of the Certificate of Incorporation of the entity.
- Memorandum and Articles of Association, including a provision to undertake money-changing businesses (or an appropriate amendment).
- A copy of the latest audited financial statements, with a certificate from a Statutory Auditor certifying the net-owned funds as on the date of the application.
- Audited balance sheets and profit and loss accounts for the previous three years, if applicable.
- Confidential report from the entity’s banker, in a sealed envelope.
- Information regarding sister or associated concerns operating in the financial sector, such as Non-Banking Financial Companies (NBFCs).
- Certified copy of the Board Resolution to undertake money-changing business.
PROCESS OF OBTAINING FFMC LICENSE
The process for obtaining an FFMC License is managed by the Reserve Bank of India (RBI):
1. Submit an application in the prescribed format through the APConnect application (https://apconnect.rbi.org.in/entity) to the respective Regional Office of the Foreign Exchange Department of the RBI.
2. The director of the entity will undergo a “fit and proper” review by the RBI. If the entity meets all criteria, the FFMC License will be issued within 2 to 3 months.
3. Clearance by the Empowered Committee is mandatory, and the RBI’s decision on granting or denying approval is final.
Note: The entity will not be eligible to obtain an FFMC License if any legal cases are initiated or pending against the entity or its directors.
POST APPROVAL REQUIREMENTS FOR FFMCs
After obtaining the FFMC License, the entity must adhere to the following conditions:
- Submit a copy of the registration under the Shops and Establishment Act or relevant documents, such as a rent receipt or lease agreement, to the RBI Regional Office before commencing business operations.
- New FFMCs must conduct their activities in accordance with RBI guidelines.
- FFMCs must display a copy of their money-changing license issued by the RBI at each business location.
- FFMCs must implement a system of concurrent audits for all transactions.
- FFMCs must submit annual audited balance sheets to the respective RBI Regional Office.
NOTES:
- Authorised Dealer (AD) Category I: Entities authorized by the RBI to carry out all permissible current and capital account transactions, as per directions issued from time to time.
- Authorised Dealer (AD) Category II: Entities authorized to carry out specified non-trade related current account transactions, all activities permitted to FFMCs, and other activities as determined by the RBI. This includes upgraded FFMCs, select Regional Rural Banks (RRBs), select Urban Cooperative Banks (UCBs), and other entities.
- Authorised Dealer (AD) Category III: Entities authorized by the RBI to carry out specific foreign exchange transactions incidental to their business activities.
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