FFMC License

FFMC Licence Cancellation: Grounds and Preventive Measures

FFMC Licence is an authorized permit to establish a business of money changing services or Forex Currency Exchange. The tourists essentially use these services if they want to exchange currencies to Indian Rupee from FFMC centre. Reserve Bank of India regulates the framework of Fully Fledged Money Changer as per section 10 of the FEMA^[1], 1999. The company shall be mandatory registered under the Companies Act, 2013.

Law related to FFMC Licence Cancellation

The process of cancellation of FFMC Licence is proved under Section 10(1) of the Foreign Exchange Management Act, 1999. RBI has stipulated two situations under which FFMC Licence can be revoked that are:

1. It is in the Public Interest;
2. In case of violation of any direction or guidelines issued by RBI or any failure to comply with the conditions subject to the provisions mentioned under FEMA, 1999.

Grounds for FFMC Licence Cancellation

There are some significant grounds for cancellation of FFMC Licence is as follows:

Poor Bookkeeping

As FFMC business grows, there are bound to be a large no. of clients and financial problems; here bookkeeping plays an essential role in carrying out smooth day to day operations. For maintaining transparency and clarity, it is mandatory for the Licence holder to get his/ her accounts audited and to have standard bookkeeping practices always in place.

RBI is empowered to investigate the books of accounts and other relevant documents of the FFMC as per the Foreign Exchange Management Act, 1999. Therefore, every FFMC licence holder must maintain all the transactions and dealings executed in a prescribed manner in an account book. Hence, non-compliance in this aspect might increase the chances of the FFMC Licence Cancellation.

Discrepancy with Exchange Rates

FFMC Licencee provides currency exchange services to Indian Nationals and Overseas Citizens at an exchange rate decided by the RBI.

However, if in case, the registered FFMC holder adopts some unconventional or uncommon modes to modify the current exchange rate to earn more profit, then, in that case, RBI will cancel or revoke the FFMC Licence of such holder.

Breach of Provisions and Guidelines

The Reserve Bank of India and Foreign Exchange Management Act, 1999 provide rules and guidelines for the proper functioning of an FFMC and penalties for non-adherence of compliances. They are obliged to follow the mandated norms and directions of the RBI in making any changes in the operational structure or business activities of a FFMC and failure can lead to the FFMC Licence Cancellation and Hefty penalties.

Some of the following grounds which can also lead to the FFMC Licence Cancellation are listed below:

• Non-implementation the mechanism of Concurrent Audit;
• Failure to regulate the updated Foreign Exchange Rates on the Chart Display;
• Failure of Licence Holder to include the list of core members on record;
• If FFMC fails to abide by the provisions concerning payment as specified under the governing law;

Preventive Measures for FFMC Licence Cancellation

Some of the preventive measures can be put in place to avoid the FFMC Licence Cancellation by RBI:

Updated Display Chart

All the FFMCs must display the current foreign exchange rate chart in a place accessible to the general public. Further, the display chart must showcase the Currency exchange rate for both travellers’ cheques and foreign currency notes most prominent foreign currencies.

Also, as we know, Indian follows a flexible exchange rate system; the exchange rate keeps frequently fluctuating due to market forces. Hence it is necessary to update the display chart accordingly and latest by 10:30 a.m. as per Indian Time.

Avoid Accumulation of Fake Currency Notes

The primary role of an FFMC is to convert foreign currency into Indian Rupee and vice versa. But, while carrying out the operations, sometimes FFMC mistakenly collets the fake foreign currency, then, in that case, it needs to write off the same after taking permission from the Senior Management.

Further, under the provisions of the FEMA, 1999, the upper limit for disposing of such currencies (fake foreign currencies) is restricted to the US $2000 every financial year. Also, the moment FFMC crosses the threshold limit, RBI authorisation is needed to proceed further.

Training Programmes for Employees

Every FFMC must implement Training Practice or Employee Training Programmes for all the members working within the said organisation. Further, to ensure integrity and transparency, these training modules must include procedures and policies relating to money-changing activities.

Avoid Build-up Foreign Currency

An FFMC always maintain the optimum level of foreign exchange as per the provision of FEMA, 1999. Any build-up in this respect will ultimately hinder the performance of the company in the longer run. RBI also asks the FFMC to focus on the transaction between Authorised Dealers and FFMC should not include payment in cash.

Moreover, all the transactions concerning foreign currency notes are limited by the FEMA provisions and guidelines issued by RBI.

 Regular Audit of Finances to Maintain Transparency

If income earned by the FFMC or Authorised Money Changer exceeds the prescribed threshold limit, then a regular financial audit must be conducted to restore integrity and transparency.

Also, it is mandatory for a Fully Fledged Money Changer to maintain the record properly so that the same can be presented during an inspection by the Reserve Bank of India. Moreover, as per section 12 (1) of the Foreign Exchange Management Act, 1999 the officers designated by RBI has the authority to audit the financial affairs and investigate the books of accounts of FFMC anytime.

Furthermore, all the core members of an AMC to cooperate and assist the investigation officers during the audit process, and failure to comply would be considered as a violation under the provisions of FEMA and may lead to FFMC Licence cancellation as well.

Reapplication after FFMC Licence Cancellation

Reserve Bank of India has followed stringent measures for granting opportunity for reapplication of FFMC Licence.

Conditions doesn’t allow for Reapplication

• If the Reserve Bank of India cancelled your previous Licence in the public’s interest, you can’t re apply for it.
• You will be not eligible if you have ever attempted to gain the Licence through sale
• If the RBI cancelled the Full Fledged Money Changer Licence in India because of your involvement in non- ethical work, granting the opportunity to reapply would be considered against the public interest.

Conditions allow for Reapplication

• Reserve Bank of India doesn’t have any issue for reapplication, if you surrendered your previous FFMC Licence by yourself.
• If legitimate reasons are presented before the RBI, an opportunity for reapplication can be granted.

Documents required for Reapplication

• Application of previous FFMC Licence
• Previously held FFMC Licence number
• Reason for cancellation of FFMC Licence
• Notification detailing the cancellation of FFMC Licence
• Same documents submitted for Fresh FFMC Licence.

Conclusion

Suppose you want to start the business of Full Fledged Money Changer. In that case, you are expected to live up to the required compliances because the Reserve Bank of India takes a matter of money changing activity very seriously. There is an option for reapplication of the FFMC Licence after its cancellation.

Read our Article: RBI Guidelines For FFMC License