What are RBI Compliances for FFMC (Full Fledged Money Changers) or Persons Dealing in Forex Transaction?

Vikalp Mishra

19 Jan, 2021

Under Section 10 of the Foreign Exchange Management Act, 1999^[1], the Reserve Bank of India authorizes entities to deal in foreign exchange for specific purposes. These entities are known as Authorized Money Changers (AMCs).

AMC can be classified into three categories:

Such varied entities enable easy access and competitive rates for persons seeking to exchange currency.

Who are Full Fledged Money Changers (FFMC)?

Full Fledged Money Changers, also known as FFMCs (a type of AMC) are the entities/persons who are involved solely in the exchange of foreign currency or foreign security.  

FFMCs are actively involved in the following activities:

Eligibility for obtaining FFMC Registration/License

As per RBI guidelines, an applicant of Full Fledged Money Changer (FFMC) License must meet the following requirements:

• Registered as a company under the Companies Act, 2013
• The Memorandum must have a mention in its Object Clause that the company will pursue money changing activity.
• Has a minimum Net Owned Fund (NOF) of
  • 25 Lacks – in case of FFMCs with single branch.
  • 50 Lacks – in case of FFMCs with Multiple Branch.
• The Company should be ‘Fit and Proper’, i.e. there shouldn’t be any criminal or civil cases pending against the company or its Director with the Directorate of Revenue Intelligence (DRI) and Directorate of Enforcement (ED).

What Documents are required for obtaining an FFMC License in India?

The following documents are required to be filed along with the application for registration as Full Fledged Money Changer before RBI:

• A copy of Certificate of Commencement of Business & Certificate of Incorporation of the Company.
• The MoA (Memorandum of Association) and AoA (Articles of Association) of the company containing the provisions for carrying out money changing activities or a proper amendment with the same effect.
• A sealed confidential report from the banker of the applicant
• Copies of the audited Balance Sheet and Profit & Loss Account of the company for the last three years before application, wherever applicable.
• A Board Resolution certified copy undertaking money changing business.
• Two Declarations
  • Firstly, specifying that no proceedings pending or initiated against the applicant company or its directors before the Directorate of Revenue Intelligence (DRI) / Directorate of Enforcement (ED) or any other law enforcing authorities,
  • Second, that a policy framework on

– KYC (Know Your Customer),

– AML (Anti-Money Laundering) &

– CFT (Combating the Financing of Terrorism)

has been put in place after obtaining approval of the Reserve Bank and before the operations commenced.

What steps are involved in acquiring FFMC Registration from RBI?

What are the compliances after obtaining a License?

• On obtaining approval from the RBI, either of the following documents is to be sent as evidence at the RBI’s Regional Office before the commencement of business

– Copy of the registration under Shops & Establishment Act or

– Copy of lease agreement or

– Rent receipt etc.

• From the date of issuance of License, within six months FMC should commence its operations and inform the Reserve Bank at the regional office.
• Every FFMC must display a copy of the money changing license or FFMC license granted by the RBI at each of its business places.
• FFMCs must have a system of Concurrent Audit of all the transactions undertaken by them.

Statutory Compliances and Day-to-Day Business for FFMCs

Every FFMC entity is required to follow

1. Provisions of Foreign Exchange Management Act, 1999 and
2. RBI published Master Circular on Memorandum of Instructions – governing Money Changing Activities &

RBI Master Direction consists of various compliances amongst which the most notable ones are

Registers and Books of Accounts

• There are certain registers which are to be maintained by the AMC related to all its transactions:
  • Balance Book and Daily Summary (related to Foreign currency notes/coins) in the form named FLM 1
  • Balance Book and Daily Summary (Travelers’ cheques) in the form FLM 2
  • Register of purchases of foreign currencies from the public in form FLM 3
  • Register of purchases of foreign currency notes/coins from authorized dealers and authorized money changers in form FLM 4
  • Register of sales of foreign currency notes/coins and foreign currency travellers’ cheques to the public in form FLM 5
  • Register of sales of foreign currency notes/coins to authorized dealers / Full Fledged Money Changers / overseas banks in form FLM 6.
  • travellers’ cheques register surrendered to authorized dealers / authorized money changers / exported in form FLM 7

• All the account books and registers namely called FLM 1 to FLM 7 should be kept up-to-date and cross-checked from time to time.
• Transactions related to money changing business should not be mixed with money changing transactions.
• If the FFMC has more than one place of business, separate registers should be maintained for each establishment.

Submission of Statements to the Reserve Bank

• Foreign Currency Notes – Submit monthly consolidated statements to RBI regarding the purchase or sale of foreign currency notes by the 10th of the next month.
• Receipt / Purchase Of USD 10,000 (or more) – a monthly statement indicating details of receipt/purchase of USD 10,000 (or its equivalent) and above per transaction shall be submitted to the regional office of RBI within 10^th of next month.
• Foreign Currency Account/s Maintained – FFMCs should submit a quarterly statement regarding Foreign Currency Account/s maintained in India in their names.
• Written off Amount – An annual Statement should be submitted to Reserve Bank giving details of the amount written off during the financial year within one month after the fiscal year ends.

Submission of Balance Sheet and maintenance of Net Owned Funds (NOF)

• Annual Audited Balance Sheet are required to be submitted to the respective Regional office of RBI for verification of their Net Owned Funds [NOF] of the AMC. Apart from this a certificate from an auditor (statutory) regarding the NOF as on the date of the balance sheet should also be submitted.
• AMCs are to continuously maintain the minimum NOF. If ever the value falls below the requisite minimum value it is to be brought to the notice of the Reserve Bank immediately along with a specific time-bound plan for restoring the Net Owned Funds to the minimum required level.

Conclusion

The FFMC License gets renewed on an annual basis. The renewal application shall be filed at least one month before the expiry of the License. If the License expires, no renewal application is allowed.

The stringent compliance requirement by the AMCs or the FFMCs is because they deal directly with the public and constitute an essential area of countries finance. According to the RBI guidelines, no entity can carry on the business of money changing activity or advertise it unless they possess a valid FFMC license. Any entity found in breach of this would be subject to penalties under the Foreign Exchange Management Act, 1999.

Please get in touch with our service team to avail advisory service regarding application of FFMC license or alternatively for our CFO Services which will help with complex web of compliances and updates by allowing you to outsource all prerequisite actions to Enterslice.

Read our article: All you need to know about Money Changing Activities