IRDA License

RBI: Reinsurance Brokers allowed to Open Foreign Currency Accounts

On 11^th Apri 2019, the Reserve Bank of India (RBI) has revamped the regulations allowing the reinsurance brokers to open the non-interest bearing foreign currency accounts with banks for undertaking transactions. These regulations were awaited for a long time by our insurance sector.

In this update, we’ll look into the recent changes in Insurance Regulatory and Development Authority (IRDA) regulations and Reserve Bank of India (RBI) notifications allowing reinsurance brokers to open foreign currency accounts, its aims, how will it affect the reinsurer broker in the Indian market.

IRDAI Regulations & RBI Notifications for Reinsurance Brokers

Insurance and Reinsurance companies are regulated under the IRDAI in India. The primary legislation governing the Indian Insurance sector is the Insurance Act, 1938 and the IRDA Act, 1999. The IRDAI issues various regulation from time to time, for the proper functioning of the reinsurer brokers in India.

• In this regard, earlier, the IRDAI has issued a notification and then RBI issued the Foreign Exchange Management (Foreign Currency Accounts by the person resident in India) Regulations, 2015, which talked about the opening of foreign currency accounts by reinsurance and composite insurance brokers. Under this notification clause 2(iii), a foreign currency account is a bank account in a currency other than the currency of India/Nepal/Bhutan.
• Under the Insurance Regulatory and Development Authority of India (Insurance Brokers) Regulations, 2018, section 2(k), an “Insurance Broker” is a person who is a direct broker, a reinsurance broker or a composite broker for the time being registered by the Authority, as the case may be, unless expressly stated to the contrary.
• Further Section 2(p) talks about Reinsurance Broker, it means “an Insurance Broker, registered by the Authority who for a remuneration and/or a Fee, solicits and arranges reinsurance for its clients with insurers and/or reinsurers located in India and/or abroad; and/or provides claims consultancy, Risk Management services or other similar services, permitted under these regulations.”

These regulations are recently revised on the basis of the recommendations of the Ram Prasad Panel- said sources at IRDAI.

Amendments for Reinsurance Brokers

The authorized dealers were informed under Foreign Exchange Management (Foreign Currency Accounts by the person resident in India) Regulations, 2015 vide Notification No. FEMA 10(R)/2015-RB^[1] dated January 21, 2016, that the laws are amended from time to time and the relevant directions are issued for the smooth functioning of the insurance and reinsurance sector.

The recent changes in the insurance sector brought forth the Foreign Exchange Management (Foreign Currency Accounts by a person resident in India) (Amendment) Regulations, 2019.

Foreign Exchange Management (Foreign Currency Accounts by a person resident in India) (Amendment) Regulations, 2019

In February 2019, under the Foreign Exchange Management Act, 1999 Section 9 and section 47 (2)(e), the RBI made amendments to the Foreign Exchange Management (Foreign Currency Accounts by a person resident in India) Regulations, 2015 [Notification No. FEMA 10(R)/2015-RB dated January 21, 2016] and brought out Foreign Exchange Management (Foreign Currency Accounts by a person resident in India) (Amendment) Regulations, 2019

Amended Regulation 4:

“2.) An authorized dealer in India may, subject to the directions as may be issued by the Reserve Bank, allow ship-manning / crew managing agencies in India and reinsurance and composite insurance brokers registered with IRDA to open and maintain non-interest bearing foreign currency accounts in India for the purpose of undertaking transactions in the ordinary course of their business.”

According to this notification, RBI has advised the entire category I Authorized Dealers and the Authorized Banks to open an interest free foreign currency account for reinsurance brokers in India. The reinsurance brokers registered with the IRDA can open and maintain the non-interest bearing foreign currency accounts with an authorized bank for undertaking the transactions in the ordinary course of their business. This notification was issued in furtherance of the Foreign Exchange Management (Foreign Currency Accounts by the person resident in India) Regulations, 2015.

Aim of these IRDAI Regulations and RBI notification

These directions and revised regulations aim to maximize the reinsurance business in India and keep in pace with the changing market scenario.

Effect of Amendment on reinsurance brokers

The reinsurance brokers have evolved from being merely a middle man which helps reinsurance contracting parties to a highly synchronized and indispensable part of the reinsurance sector in India. These regulations will open new gates for the reinsurance brokers which will, in turn, be profitable for the Indian market scenario.

For more information on this, you can contact our team of experts at Enterslice.