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All you need to know about Authorised Person under FEMA

Ashish M. Shaji

| Updated: Mar 23, 2022 | Category: FEMA

Authorised Person under FEMA

It is impossible to think that the Reserve Bank can do all transactions in the foreign exchange on its own. Therefore the RBI delegates its powers to an authorised person under FEMA who deals in foreign exchange and securities. It is a broad topic that requires proper understanding hence this article aims to simplify the concept of authorised person under FEMA.

Who is an authorised person?

As per Section 2(c) of the Foreign Exchange Management Act 1999, authorised person means an authorised dealer, money changer, off shore banking unit or any other person who has been authorised under Section 10(1) of the FEMA to deal in foreign exchange and foreign securities.

Authorised person under FEMA

The categorisation of authorised persons under FEMA is as follows:

CategoryEntityActivities permitted
Authorised Dealer-ICommercial banks, state co-operative banks, urban co-operative banksAll current & capital account transactions according to RBI directions
Authorised Dealer-IIUpgraded FFMCs, Cooperative banks, regional rural banks, othersSpecified non-trade related current account transactions and activities permitted to FFMC
Authorised Dealer-IIISome selective Financial and other institutionsTransactions incidental to the foreign exchange
Full fledged money changersDepartment of Post, Urban Co-operative Banks, Other FFMCPurchase of foreign exchange & sale for private & business visits abroad.

How to become an authorised dealer under FEMA?

Authorised persons have the authorisation from the Reserve Bank of India to deal in foreign exchange. You can submit an application along with relevant documents to the RBI in order to become an authorised person. Even if you are approved as an authorised person, you do not have a free hand in foreign exchange. You will have to furnish documents of your transactions to the Reserve Bank as and when they are asked for as per the category of authorised person.

The FEMA 1999[1], states that RBI may authorise any person to be known as authorised person, on an application made to the RBI in this behalf, to deal in foreign exchange or foreign securities as an authorised dealer, money changer or off shore banking unit. Such authorisation shall be in writing, and such authorisation shall be revoked in case the RBI believes that it is in public interest to do so or where the authorised person has failed to comply with the conditions upon which the authorization was granted. However, a reasonable opportunity of being heard shall be provided before revoking such authorisation.

Activities by authorised dealer- Category II

Authorised dealer-II can undertake the following transactions-

  • Private and business visits;
  • Remittance of tour operators;
  • Participation in international events, global conferences, and specialised training;
  • Medical treatment abroad;
  • Overseas education;
  • Employment and overseas job application;
  • Visa fee and emigration fee;
  • Fees for registration of documents;
  • Fees for international organizations.

Authorised dealer- Category I

All the nationalised banks, leading non-nationalised banks as well as foreign banks are chosen as authorised dealers category I to deal in foreign exchange. They may deal in other transactions in foreign exchange such as bill of exchange, cheques, letters of credit, deposits etc. They can buy from the public in India TTs, MTs, drafts, bills etc., drawn in foreign currency against rupees.

Authorised Dealer-Category III

Entities such as select financial institutions and others are included under this category of authorised persons under FEMA. The transactions that are incidental to foreign exchange are allowed to these entities by the RBI.

FFMC

The final category of authorised persons includes entities such as Full Fledged Money Changers. These include urban cooperative banks, department of post and other full fledged money changers. As far as permissible activities under this category is concerned, such entities can buy foreign exchange securities for foreign business visits or for private purposes.

What are the powers of RBI in respect of authorised person under FEMA?

The RBI has the power to inspect an authorised person whereby it can verify the authenticity of a statement, information or particulars submitted to the Reserve Bank. The RBI can also obtain any information or particulars that the authorised person has failed to furnish on being asked to do so.

Conclusion

There are mainly four major categories of authorised persons under FEMA, namely- Authorised Dealer-I, Authorised Dealer-II, Authorised Dealer-III and FFMC. The Reserve Bank has the ultimate authority to authorise authorised persons under Foreign Exchange Management Act who will deal in foreign exchanges and foreign securities.

Read our Article:Mandatory filing of APR for investments made outside India

Ashish M. Shaji

Ashish M. Shaji has done his graduation in law (BA. LLB) from CCS University. He has keen interests in doing extensive research and writing on legal subjects especially on corporate law. He is a creative thinker and has a great interest in exploring legal subjects.

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