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Money-Changing-Business-RBI-Regulation-FFMC

Narendra Kumar

| Updated: Oct 15, 2018 | Category: Full Fledge Money Changers

Money-Changing-Business-RBI-Regulation-FFMC

What is Money Changers or Money Changing Activities?

Full-Fledged money changers are also known by the name of Authorized Money Changers, which are the entities authorized by the Reserve Bank of India under Section 10 of FEMA, 1999. In this article we will discuss about Money-Changing-Business-RBI-Regulation-FFMC.

Type of Entities are Authorized to deal in Money Changing Business

Following are the entities authorized by the Reserve Bank to deal in Foreign Exchange for specified purposes, involving widening of the foreign exchange facilities to the tourists and resident:

The aim is to ensure efficient customer services through healthy competition. The activities include the purchase of foreign exchange from the residents and foreigners visiting India and selling thereafter for certain approved purposes. The Franchisees may also be appointed by the above entities for the purchase of foreign exchange. Unless the entities possess a valid license for money exchange issued by Reserve Bank, it shall not carry on or advertise that it carries on the activities of a money changer. If any person is found guilty of such activities, she shall be liable to be penalized under the Act.

What are the Entry Norms for the Issuance of a Money Changing License?

  • The applicant shall be a Company registered under Companies Act, 2013 as Private Limited or Public Limited company.
  • The minimum Net Owned Funds for the purpose shall be as follow:
Category Minimum Net Owned Funds
Single Branch FFMC 25 lakhs
Multi-Branch FFMC 50 lakhs

What are Documents required for Full Fledge Money Changer License (FFMC)?

Application in the prescribed form shall be submitted to the respective department of Reserve Bank for Foreign Exchange, under whose jurisdiction the registered office of the applicant is situated. The application shall be accompanied by the following documents:

  • Certified copy of Certificate of Incorporation of the Company, accompanied by Certificate of Commencement of Business if any;
  • Certified copy of the Memorandum and Articles of Association of the Company, clearly specifying the objectives of money changing activities to be undertaken by it;
  • In case of an existing company with different objectives, the MOA and AOA shall be accompanied by the orders of the Company law Tribunal;
  • Copy of latest audited accounts certified by a Statutory Auditor clearly depicting the Net Owned Funds as on the date of application. This shall also be accompanied by the audited Balance Sheet and Profit and Loss Account for the last three years, wherever applicable;
  • Bankers report in the sealed envelope;
  • A declaration specifying non-pendency of any proceedings with the Directorate of Enforcement (DoE)/ Directorate of Revenue Intelligence (DRI) or any other enforcement authorities against the applicant company or its directors;
  • No criminal cases must have been initiated or shall be pending against the applicant company or its directors;
  • Declaration confirming the effectiveness of the proper policy framework on KYC/AML/ CMT, which shall be put in place after the grant of a license by the RBI and before starting off the operations;
  • Details regarding any sister/associated concerns having operations in the financial sector, such as NBFCs etc.
  • A certified copy of the Board Resolution agreeing about the involvement in Money Changing activities.

Due to operations of several FFMCs, RBI is granting fresh applications to only those applicants who are complying with all the licensing requirements.

Other factors governing approval of the the FFMC license

 If DoE/DRI or any other enforcement authorities had initiated/given verdict over any case against the applicant company or its directors/promoters, then its applications shall not be considered for FFMC licensing;

  • The decision of the Reserve bank shall be final and binding in the matter of grant of approval;
  • Once the approval is granted by the Reserve Bank, the applicant shall submit to the concerned regional office of the RBI, a copy of registration under Shop and Establishment, rent receipt or any other documentary evidence;
  • The business should be commenced within a period of six (6) months of the grant of a license by the RBI, and such commencement of business shall be informed to the concerned Regional Office of the RBI;

What are the RBI Guidelines for grant of FFMC license for Additional Branches?

 In order to carry out the money changing business at a place except for the permanent place of business, the prior approval from the RBI shall be sought;

  • A written application shall be submitted in this respect to the regional office of the Forex Department under whose jurisdiction the registered office of the applicant company is situated;
  • The main focus is that the branches shall be scattered and adequate money exchange facilities shall be provided in the remote areas of tourists attraction;

Documentation for Additional Branch of Money Changers

 The application shall be submitted along with the following documents:

  • Latest Audited accounts accompanied by a certificate from Statutory Auditor, clearly specifying the position of Net Owned Funds(NOF) as on date;
  • Bankers Report in a sealed envelope;
  • A declaration specifying non-pendency of any proceedings with the Directorate of Enforcement (DoE)/ Directorate of Revenue Intelligence (DRI) or any other enforcement authorities against the applicant company or its directors;
  • The new branch shall not be allowed to an FFMC against whom any DRE/DRI case is pending;
  • Declaration confirming the effectiveness of the proper policy framework on KYC/AML/ CMT, which shall be put in place after the grant of a license by the RBI and before starting off the operations in the new branch of FFMC;
  • Declarations on internal control systems including internal/external audit;
  • A copy of registration under Shop and Establishment, rent receipt or any other documentary evidence of the place of business of additional branch.

Conditions for opening Foreign Exchange Counters at International Airports in India

 In the case of Foreign Exchange Counters in the arrival halls of the International Airports, they shall be established after the Customer desks or may also be established between the Immigration desk and the customer disk;

  • In the case of Foreign Exchange Counters in the departure halls of the International Airports in India, they shall be established only before the customer desk or the immigration desk, whichever comes first;
  • The maximum currency held by the Non-residents beyond the Immigration desk shall be INR 10,000/- in order to meet the miscellaneous expenditures;
  • The purpose is to ensure that money changing facility shall be provided to the Non-residents to dispose of the unspent currency;
  • Such foreign exchange counters shall buy Indian currency and sell the foreign currency from/to non-residents as per usual terms and conditions;

The operations at the additional branch shall be commenced within a period of six (6) months from the grant of approval by RBI, and the information about such commencement of business shall also be provided.

Guidelines for appointment of Agents/Franchisees by Authorized Dealer Category I banks/Category II banks/FFMCs

 The above entities can enter into the Franchisees Agreement as per their will, in order to carry out the money changing business such as conversion of foreign currency notes, coins or traveler’s cheques;

  • The Franchisee shall be an entity with the physical place of business and minimum Net Owned Funds of 10 lacs INR;
  • The tenure of the Franchisee agreement shall be decided by the Authorized Dealer Category I banks/Category II banks/FFMCs and the commission and fees payable to the franchisee shall be decided by the mutual agreements between the parties;

 Features of Franchisee Agreement by Money Changer License Holder

 Following are the salient features of the Franchise Agreement:

  • The name of the Franchisers and the exchange rates shall be primarily displayed by the Franchisees and the exchange rates shall be in coordination with the daily exchange rates as charged by Authorized Dealer Category I banks/Category II banks/FFMCs and their branches;
  • The purchased foreign currency shall be surrendered by the franchise to the franchiser within the period of 7 working days from the date of purchase;
  • The proper records of all transactions shall be maintained by the franchisees;
  • The Franchiser shall conduct the onsite inspection of the Franchisee at least once a year;

Procedure for application for appointment of Franchisee by the FFMC License Holder

 Authorized Dealer Category I banks/Category II banks/FFMCsshall apply to the respective regional office of the RBI for the appointment of Franchisees under this agreement;

  • The application shall be made in Form RMC-F and shall be accompanied by a declaration that adequate due diligence of the entity has been carried out before entering into the Franchise Agreement;
  • The reporting of every new franchisee shall be made to the Reserve Bank on a post-facto basis along with the above-mentioned declaration;

What is Due Diligence requirement of Franchisees?

 Following minimum checks shall be done while conducting the due-diligence of the Franchisees:

  • The background of the Franchisee long with its existing business activities;
  • Adherence to the minimum Net Owned Funds (NOF) as prescribed for the Franchisees;
  • Municipal certification including registration under Shop and Establishment act, in the favor of Franchisees;
  • Verification of the physical office of the Franchisee, from where the restricted money changing activities will be carried on;
  • Certificate of Conduct from the local police authorities in favor of the Franchisee;
  • Declaration regarding non-involvement in any criminal case against the franchisees/its directors/shareholders;
  • PAN Card of the Franchisee, its directors, its shareholders;
  • Photographs of the Directors, shareholders and other KMP of the franchise;

The above points shall be in check on a regular basis or at least once in a year including the personal visit to the site of the Franchisee after the receipt of the documentary evidence of such place of business.

Centers for Franchisees

 The Franchisees shall be appointed within a distance of 100 km from the controlling branches of Authorized Dealer Category I banks/Category II banks/FFMCs

  1. The above criterion is exempted in case of recognized groups/chain of hotels;
  2. The above criterion is also exempted in hilly areas and northeastern

Reporting, Audit, and Inspection of Franchisees

 Adequate arrangements shall be put in place for reporting of transactions to the Franchisers by the Franchisees;

  • The reporting shall be done on a regular basis, at least monthly;
  • The spot audit of all the franchisees shall be conducted at least once in six months;
  • The annual inspection shall also be done along with the application of the concept of ‘Mystery Customers’;
  • Such inspections shall ensure that all the terms of the Franchisee agreement, as well as the guidelines prescribed by the RBI in this respect, is followed upon by the Franchisees;

Anti Money Laundering (AML) / Know Your Customer (KYC) / Combating the Financing of Terrorism (CFT) Guidelines

The above-mentioned guidelines shall strictly adhere to b the Franchisees.

What is the Renewal Process of FFMC Licenses?

  • The applicant shall be a Company registered under Companies Act, 1956 or 2013;
  • The minimum Net Owned Funds for the purpose shall be as follow:
Category Minimum Net Owned Funds
Single Branch FFMC 25 lakhs
Multi-Branch FFMC 50 lakhs

 

  • A declaration specifying non-pendency of any proceedings with the Directorate of Enforcement (DoE)/ Directorate of Revenue Intelligence (DRI) or any other enforcement authorities against the applicant company or its directors;
  • Copy of the existing KYC/AML/CFT Policy prevailing in the Company.
  • The application for renewal shall be made at least one month prior to the expiry of the license;
  • Where the application for renewal is made, the license shall be effective until the day of renewal or the day of rejection, as the case may be;
  • After the expiry of the license, no application for renewal shall be made.

Guidelines for operation of a Full Fledged Money Changer (FFMC)

  1. Bringing in and taking out of the Foreign Exchange

  • There is no limit on the quantum of foreign exchange brought into India if the same has been declared on the Currency declaration form(CDF) to the customs No declaration in the CDF is required if the currency notes or traveler’s cheques does not exceed US$ 10,000/- or its equivalent and/or the value of foreign currency notes does not exceed US$ 5,000/- or its equivalent;
  • No foreign exchange shall be taken out without the general or special permission of the Reserve Bank unless it is bought from the Authorised dealer or money changer;
  1. Purchases of foreign currency from public

  • Foreign currency notes, coins and traveler’s cheques from residents as well as non-residents can be freely purchased by the FFMCs and their franchisees;
  • The tendered shall always demand the CDF before executing such exchange of currencies;
  • Similarly, Indian Rupees may be sold to the foreigners against their International Debit/Credit Cards and prompt steps shall be taken to obtain reimbursement through normal banking channels;
  1. Encashment Certificate

  • The certificate of encashment may be issued in the case of purchase of foreign currency notes, coins and traveler’s cheques;
  • Such certificates shall be issued on the letterhead of the money changer, and proper records of the same shall be maintained;
  1. Purchases from the other FFMCs and Authorised Dealers (ADs)

Foreign currency notes, coins and encashedtravellers’cheques may be freely purchased from other AMCs and Ads in the normal course of the business. The rupee equivalent of the same shall be paid only by way of crossed account payee cheque/Demand DraftBankers’ cheque / Pay order.

  1. Sale of Foreign Exchange

  • Private Visits

The Foreign Exchange shall be sold to a person resident in India for undertaking one or more private visits to the foreign country in accordance with the prescribed ceiling, currently 10,000/- USD;

  • Business Visits

Foreign Exchange may be sold to the person resident in India for the following purposes:

  • Undertaking Business Travel;
  • for attending a conference;
  • specialized training;
  • for maintenance expenses of a patient going abroad for medical treatment or check-up abroad or;
  • for accompanying as attendant to a patient going abroad for medical treatment/check-up up to the limits

The specified limit for such purpose is 25,000/- USD per visit.

  • Forex Prepaid Cards issued by FFMC License Holder

These cards may be issued to the residents traveling abroad for the private or business purpose provided they fulfill all the KYC/AML/CFT requirements. It shall be noted that the settlement of transactions made through these cards shall be done only by AD Category I banks.

  1. Other Conditions

  • The RBI has not prescribed the documents which shall be verified by the money changers while releasing the foreign exchange;
  • In case of issue of traveler’s cheques, the same shall be signed in the presence of the authorized officials;
  • In case of release of foreign exchange for the travel purposes, the declaration shall be given by the traveler regarding the amount of foreign exchange availed during the year;
  • In case of sale of foreign exchange for traveling abroad, the cash of up to INR 50,000/- can be accepted by the FFMCs;
  • In case, the amount of sale exceeds INR 50, 000/-, it must be received only by the way of a crossed cheque drawn on the applicant’s bank account or crossed cheque
  • drawn on the bank account of the firm/company sponsoring the visit of the applicant or Banker’s cheque / Pay Order / Demand Draft.
  1. Cash Memo

Cash memo shall be issued on the official letterhead of the money changer to the travelers to whom the foreign currency is sold by them. Such cash memo shall be presented to the emigration authorities while leaving the country.

  1. Rates of Exchange

The exchange rates shall be determined by the ongoing market conditions and all the transactions shall be put through the same.

  1. Display of Exchange Rate Charts

A chart indicating the rates for purchase/sale of foreign currency notes/ traveler’s cheques shall be displayed at a prominent place or a public counter indicating the rates for all major currencies and rate cards every day by 10:00 AM latest.

  1. Foreign Currency Balances

  • Balances for foreign currency shall be kept at reasonable levels and the building up of the idle balances shall also be avoided;
  • Foreign Currency notes, coins and traveller’s cheques shall be surrendered by the franchisees to the franchiser within 7 working days;
  • No settlement between the authorized dealers and Franchisees shall be done in cash and can only be settled through account payee crossed cheques/demand
  1. Replenishment of Foreign Currency Balances

  • The normal business requirements for foreign currency notes shall be obtained from other authorized money changers against rupees by the way of accounts payee crossed cheque/Demand Draft;
  • An application may be made to the Forex Markets Division, Foreign Exchange Department, Central Office, Reserve Bank of India, Mumbai through an AD Category-I for permission to import foreign currency into India, in case the stock is not replenished as per above;
  • The import should be made effective through the designated AD Category-I through whom the application shall be made.
  1. Export / Disposal of surplus Foreign Currency Notes / Travellers’Cheques

  • Any surplus foreign currency notes / encashedtravellers’cheques can be exported by the FFMC to an overseas bank through designated Authorized Dealer Category – I in foreign exchange for the realization of their value through the latter.
  • FFMCs may also export surplus foreign currency to private money changers abroad subject to the condition that either the realizable value is credited in advance to the AD Category – I bank’s Nostro account or a guarantee is issued by an international bank of repute covering the full value of the foreign currency notes/coins to be exported.
  1. Write-off of fake foreign currency notes

  • In case the foreign currency notes purchased are being found fake/forged subsequently, they may be written- off up to the US $ 2000 per financial year after prior approval from the Top Management of the FFMCs and after exhausting all available options for recovery of the amount.
  • If the amount of write-off is greater than the above-mentioned amount, then it would require the approval of the Regional Office concerned of the Foreign Exchange Department of the Reserve Bank.
  1. FFMC License Holder RBI Compliance requirement?

Following registers shall be maintained by the FFMCs in respect of the transactions of money changing:

(a) Daily Summary and Balance Book (Foreign currency notes/coins) in form FLM 1

(b) Daily Summary and Balance Book (Travellers’cheques) in form FLM 2

(c) Register of purchases of foreign currencies from the public in form FLM 3

(d) Register of purchases of foreign currency notes/coins from authorized dealers and authorized money changers in form FLM 4

(e) Register of sales of foreign currency notes/coins and foreign currency traveller’s cheques to the public in form FLM 5

(f) Register of sales of foreign currency notes/coins to authorized dealers / Full Fledged Money Changers / overseas banks in form FLM 6

(g) Register of traveller’s cheques surrendered to authorized dealers / authorized money changers / exported in form FLM 7

  • The above documents shall be kept up-to-date, cross-checked and the balances shall be verified on a daily basis;
  • The transactions outside the scope of money changing activities shall not be mixed together;
  • In case the FFMC maintains more than one establishment, separate registers shall be maintained for each establishment;
  • In the case of inter-branch transfers of foreign currencies, they shall be accounted as stock transfer and not as sales;
  1. Submission of Statements to Reserve Bank

  • A monthly consolidated statement of all offices for all sale and purchase of foreign currency notes shall be submitted by the FFMC in form FLM 8 to the concerned office of the RBI so as to reach not later than the 10th of the succeeding month;
  • A monthly statement indicating details of receipt/purchase of US $ 10,000 (or its equivalent) and above shall be submitted to the regional office of the RBI, within 10 days of the end of the month;
  • A quarterly statement regarding Foreign Currency Account/s maintained in India in their names with AD Category-I Banks shall be submitted to the regional office of the RBI
  • An Annual Statement giving the details of the amount written off during the financial year should be submitted by all the AMC to the respective Regional Offices of the Foreign Exchange Department, Reserve Bank which have issued the licenses within one month of the financial year-end.
  1. Inspection of transactions of FFMCs

  • Any officer of Reserve Bank, as empowered by FEMA, 1999, is authorized to inspect the books of accounts and other documents of AMC;
  • All kind of assistance and co-operation shall be provided to the investigating authority for carrying out of inspection;
  • In case the FFMC fails to produce any books of accounts, or any other document or fails to answer any question asked by the IA regarding the money changing activities, then it shall be considered a contravention of the provisions of the Act;
  1. Concurrent Audit

  • A system of the concurrent audit shall be put in place for all the transactions undertaken by the FFMC;
  • Single branch AMCs having a turnover of less than US $ 100,000 or its equivalent may adopt a system of quarterly audit.
  • AMCs having multiple branches, may put in place a system of Concurrent Audit which will cover 80 percent of the transactions value-wise under a system of monthly audit and rest 20 percent of the transactions value-wise under quarterly audit.
  • The appointment or selection of the concurrent auditor shall be done by the FFMC only.
  • The Concurrent auditor shall be responsible for checking all the transactions of the FFMC and ensuring that all the instructions issued by the Reserve Bank from time to time have been complied with.
  1. The opening of Foreign Currency Accounts by AMC

AMCs or FFMCs may be allowed to open Foreign Currency accounts in India, subject to the following conditions:

  • A particular center shall hold only one account;
  • The foreign currency notes encashed and exported through the specified banks can only be credited to the account;
  • The account shall not hold any idle balance;
  1. Submission of Balance Sheet and maintenance of NOF

  • All AMCs shall submit their annual audited balance sheet to the respective Regional Office of the Reserve Bank for the purpose of verification of their Net Owned Funds along-with the statutory auditor’s certificate regarding the NOF as on the date of the balance sheet.
  • In case of any erosion in the NOF of the FFMC below the minimum level, it shall be brought into the notice of RBI immediately along with a detailed time-bound plan about the restoration of the Net Owned Funds to the minimum required level.

Hope you have liked our Analysis in case you are looking for Full fledge money changer license (FFMC License) please feel free to write us info@enterslice.com

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Narendra Kumar

Experienced Finance and Legal Professional with 12+ Years of Experience in Legal, Finance, Fintech, Blockchain, and Revenue Management.

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