A detailed guide on Regulatory Framework of FFMC License

Sonal Pruthi

06 Sep, 2022

The article provides a guideline for Regulatory Framework of FFMC License. The FFMC license is all about the Fully Fledged Money Changer License. The Foreign Exchange Management Act, 1999 has been vested with the power to deal in foreign exchange matters. Authorised Dealers are appointed under the Act, where they are empowered to deal with foreign exchange or money changing activities. It has been clarified that any person intending to do the business of FFMC needs to take the License for FFMC Registration. The Regulatory framework for FFMC has been adequately defined under section 10(1) of FEMA Act, 1999.

What business activities can be conducted By FFMC- under the regulatory framework for FFMC?

Fully fledged money changers are liable to carry out the following activities:

• They can take up a franchise for money changing activities;
• conversion of foreign currency notes to Indian Rupees;
• Provide travellers cheques; and
• Receive money through normal banking channels.

FFMC are allowed to buy coins and foreign currency from NRIs as well as residents.

Classification of FFMC License

The License has been defined under the regulatory framework of FEMA. The following are categories of FFMC:

1. Banks as Authorised Dealers Category-I- who can carry out permitted activities in current and capital transactions.
2. Entities as authorised Dealers Category-II- Who carry out specified non- trade-related current account transactions. All the activities permitted to Fully Fledged Money Changers.
3. Financial and Other Institutions- Authorised Dealers Category III- to carry out specific foreign exchange transactions that are incidental to their business/activities.
4. Registered Companies as Full-Fledged Money Changers can undertake the purchase of foreign exchange for specified purposes.

Eligibility to enrol in Regulatory Framework for FFMC

The guidelines to enrol in Regulatory Framework for FFMC are as given follows:

1. The applicant must be company registered under the Companies Act, 2013^[1] or previous Company Law.
2. The minimum net owned funds for the FFMC, being a single branch FFMC –it is- 25 lakhs, and multiple branch FFMC- it is Rs 50 lakhs

The minimum net owned funds required for the consideration are as follows; the applicant minimum net owned funds should be computed as:

a) Owned Funds (Paid Up Equity Capital + Free Reserves + Credit Balance in Profit & Loss Account) minus (Accumulated balance of loss, Deferred Revenue Expenditure and other tangible assets)

b) Net Owned Funds-Owned Funds minus the amount of investment in shares of its subsidiaries, company in the same group

c) Investments can include a share of its subsidiaries, the book value of debentures, bonds, outstanding loans and even advances made to and deposits with its subsidiaries and companies in the same group in excess of 10% of the owned funds.

Procedure for FFMC License (Regulatory Framework for FFMC)

1. Application -The Regulatory Framework for FFMC begins after filing the application. The applicant needs to submit the Application in the requisite form given in the FEMA under section 10(1) of the Act. The form shall be submitted to the regional office of the Reserve Bank of India (RBI), under the jurisdiction where the registered office of the applicant falls.
2. The applicant must fulfil the fit and proper criterion-it means that there should be no litigation or proceedings pending with the Department of Revenue or Department of Enforcement.
3. Review the Director fit and proper criterion- It must check the Director application carefully and satisfy the RBI requirements.
4. Certificate of Incorporation- if RBI is satisfied, RBI shall issue the Certificate of Incorporation and License to the applicant for doing the foreign exchange work.
5. Empower Committee Clearance-The applicant requires clearance from the empowering committee of the RBI.

Documents required for the Regulatory Framework for FFMC

1. Certificate of Incorporation
2. Memorandum and Article of Association containing the objects of the business.
3. Latest Accounts– Copy of the accounts audited from the Statutory Auditors. Where it certifies the net owned funds on the date of the Application. It must give a copy of the last audited balance sheet and Profit & Loss Account for the last three years.
4. Confidential Report – Confidential Report from the Bank.
5. A copy of Declaration– A declaration that no proceedings have been initiated against or pending with the Directorate of Enforcement (DoE)/ Directorate of Revenue Intelligence or any other law enforcing the authorities against the applicant’s company or its directors and that no criminal case is instituted against the applicant company or its directors
6. Declaration for KYC– A statement to give effect to the policies of the KYC/AML/CFT, accordingly with the guidelines issued by the RBI, Department Banking Regulation. That to Know Your Customer (KYC) Direction, 2016.
7. Details of other sister concerns– Associated concerns operating in the financial sector like NBFC etc.
8. Certified copy of the board resolution –Carrying out the business of FFMC.

Conclusion

It can be concluded that the FFMC License is a mandatory requirement. The requirements are laid to regulate and control the activities of money changing. The regulatory body is the Reserve Bank of India. RBI has the authority to appoint any person as the Authorised Dealer under its category. They have also laid the category for franchisees to carry out foreign exchange transactions. The Authorised Dealer has also been given the option to renew the License. It has been declared under the legislation of FEMA that, no entity can perform the business without obtaining the License.

Read our article:RBI Guidelines For FFMC License