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Master Direction - Money Changing Activities

FEMA - 3/2015-16 - Dated:- 1-1-2016 - RBI/FED/2015-16/17 FED Master Direction No.3/2015-16 January 1, 2016 To All Authorised Persons in Foreign Exchange Madam / Dear Sir, In terms of Section 10 of the Foreign Exchange Management Act, 1999, Reserve Bank authorises persons designated as Authorised Persons to deal in foreign exchange as, inter alia, an Authorised Dealer or a money changer. 2. Authorised Money Changers (otherwise called a Full Fledged Money Changers) and Authorised Dealers Category .....

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t and any rules, regulations, notifications, directions or orders made there under. 4. The directions relating to authorization, functioning of the money changers and Authorised Dealer Category II entities and their franchisees as well as the conduct of foreign exchange transactions with their customers/constituents are being issued in a consolidated form through the Master Direction enclosed herewith. Reporting instructions can be found in Master Direction on Reporting. It may be noted that whe .....

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hanging business can be undertaken by Authorised Money Changers (AMCs) which are authorised by the Reserve Bank under Section 10 of the Foreign Exchange Management Act, 1999. No person shall carry on or advertise that he carries on money changing business unless he is in possession of a valid money changer s licence issued by the Reserve Bank. Any person found undertaking money changing business without a valid licence is liable to be penalised under the Act ibid. An AMC can be a Full Fledged Mo .....

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oreign exchange for private and business travel purposes only. The guidelines for issue of new FFMC licence and renewal of FFMC licence, branch licensing, approval for appointment of agents / franchisees and Know Your Customer (KYC) / Anti Money Laundering (AML) / Combating of Financing of Terrorism (CFT) Guidelines for Authorised Persons (AP) are given below. (i) Entry Norms (a) The applicant has to be a company registered under the Companies Act, 1956. (b) The minimum Net Owned Funds (NOF) req .....

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vestments in shares of its subsidiaries, companies in the same group, all (other) non-banking financial companies as also the book value of debentures, bonds, outstanding loans and advances made to and deposits with its subsidiaries and companies in the same group in excess of 10 per cent of the Owned funds. (ii) Documentation Application in the prescribed form should be submitted to the respective Regional Office of the Foreign Exchange Department of the Reserve Bank under whose jurisdiction th .....

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lication. Copies of the audited Balance Sheet and Profit & Loss Account of the company for the last three years, wherever applicable. Confidential Report from the applicant's banker in a sealed cover. A declaration to the effect that no proceedings have been initiated by / are pending with the Directorate of Enforcement (DoE) / Directorate of Revenue Intelligence (DRI) or any other law enforcing authorities, against the applicant company or its directors and that no criminal cases are in .....

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o far and from time to time in future, mutatis mutandis, applicable to APs, will be put in place on obtaining the approval of the Reserve Bank and before commencement of operations. Details of sister / associated concerns operating in the financial sector, like NBFCs, etc. A certified copy of the board resolution for undertaking money changing business. (iii) Basis for Approval (a) Since several FFMCs are already functioning, fresh licences will be issued on a selective basis to those who comply .....

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III for the details in this regard. (* Also applicable to non-bank ADs Category - II) (d) Clearance by the Empowered Committee The request for issuance of FFMC licence would be considered by the Regional Office concerned of the Reserve Bank on the basis of the clearance by an Empowered Committee, set up for the purpose. (e) Reserve Bank s decision in the matter of granting approval or otherwise will be final and binding. (f) On obtaining approval from the Reserve Bank, a copy of the registration .....

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V and VI below and other instructions issued by the Reserve Bank from time to time. [Note:- Urban Cooperative Banks (UCBs), fulfilling the eligibility norms, would be considered for authorization as Authorised Dealer Category-I / Authorised Dealer Category-II only.] SECTION II Guidelines for Grant of Authorisation for Additional Branches:- 1. No FFMC shall carry on money changing business at any additional place of business other than its permanent place of business except with the prior approva .....

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ts, etc. Preference will be given to applications for branches in remote areas of tourist attraction. 2. Applications for additional locations (places of business) should be accompanied by the following:- A certificate from Proprietor/Partner/Director /CFO of the entity as regards the position of NOF. A declaration to the effect that no proceedings have been initiated by / are pending at the Directorate of Enforcement (DoE) / Directorate of Revenue Intelligence (DRI) or any other law enforcing a .....

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nk will be final and binding. Where any DoE / DRI case is adjudicated and penalty is imposed, a view will be taken, on the basis of the nature of the offence, provided no fresh case is instituted by DoE / DRI. A declaration that there is no change in the KYC/AML/CFT policy framework since its last submission to RBI. However, in case there is a change, a copy of the revised / latest version of the policy shall be required to be submitted. A declaration to the effect that there is no change in the .....

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ening Foreign Exchange Counters (full-fledged branches/ extension counters) at the international airports in India, AD Category-I banks/ AD Category - II/ FFMCs should adhere to following conditions. Foreign Exchange Counters in the arrival halls in international airports in India shall ideally be established after the Customs Desk (Green Channel/Red Channel). However, Foreign Exchange Counters may also be established between the Immigration Desk and the Customs Desk in international airports in .....

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ts laid down at para (c) and (d) below, Foreign Exchange Counters at the departure halls in the international airports may be established in the Duty Free Area/SHA beyond the Immigration/Customs desk. Resident Indians as well as those Non-residents who are - (i) not citizens of Pakistan or Bangladesh and (ii) not going to Pakistan or Bangladesh, are allowed to take Indian notes up to an amount not exceeding ₹ 25,000/- while leaving the country though an airport. Citizens of Pakistan and Ba .....

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1. Under the Scheme, the Reserve Bank permits AD Category - I Banks, AD Category - II banks and FFMCs to enter into [franchisee (also referred as agency)] agreements at their option for the purpose of carrying on Restricted Money Changing business i.e. conversion of foreign currency notes, coins or travellers' cheques into Indian Rupees. However, franchisees of AD Category -I Banks / ADs Category - II / FFMCs functioning within 10 kms from the borders of Pakistan and Bangladesh may also sel .....

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are free to decide on the tenor of the arrangement as also the commission or fee through mutual agreement with the franchisee. The Agency / Franchisee agreement to be entered into should include the following salient features: (a) The franchisees should display the names of their franchisers, exchange rates and that they are authorized only to purchase foreign currency, prominently in their offices. Exchange Rate for conversion of foreign currency into Rupees should be the same or close to the d .....

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C should apply to the respective Regional Office of the Reserve Bank, in Form RMC-F for appointment of franchisees under this Scheme. The application should be accompanied by a declaration that while selecting the franchisees, adequate due diligence has been carried out and that such entities have undertaken to comply with all the provisions of the franchising agreement and prevailing Reserve Bank regulations regarding money changing. Approval would be granted by the Reserve Bank for the first f .....

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et Owned Funds of the franchisee. Shops & Establishments / other applicable municipal certification in favour of the franchisee. verification of physical existence of location of the franchisee, where restricted money changing activities will be conducted. conduct certificate of the franchisee from the local police authorities (certified copy of Memorandum and Articles of Association and Certificate of Incorporation in respect of incorporated entities). Note: Obtaining of Conduct Certificate .....

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photographs of the directors / partners and the key persons of franchisee. The above checks should be done on a regular basis, at least once in a year. The AD Category - I Banks / ADs Category - II / FFMCs should obtain from the franchisees proper documentary evidence confirming the location of the franchisees in addition to personal visits to the site. The AD Category -I Banks / ADs Category - II / FFMCs should also obtain a Chartered Accountant's certificate confirming the maintenance of t .....

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the AD Category - I banks / AD Category - II/ FFMCs (franchiser) concerned. (iii) Further, in case of areas declared as hilly areas (as defined by the respective State Governments/ Union Territories) and the North-Eastern States, the distance restriction given in point (i) above is not applicable. 7. Training Franchisers are expected to impart training to the franchisees as regards operations and maintenance of records. 8. Reporting, Audit and Inspection The franchisers, i.e. the AD Category-I B .....

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to which people and process perform as they should) concept should be used to test the compliance level of the franchisees. A system of annual inspection of the books of the franchisees should also be put in place. The purpose of such inspection is to ensure that the money changing business is being carried out by the franchisees in conformity with the terms of the agreement and prevailing Reserve Bank guidelines and that necessary records are being maintained by the franchisees. 9. Anti Money L .....

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pointing franchisees and subsequent to the date of approval, any DoE / DRI / CBI / Police case is filed, the FFMC / non-bank AD Category - II should not appoint any further franchisees and bring the matter to the notice of the Reserve Bank immediately. A decision will be taken by the Reserve Bank regarding allowing the FFMC / non-bank AD Category - II to appoint franchisees. SECTION IV Guidelines for Renewal of licences of existing FFMCs : 1. The applicant should be a company registered under th .....

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wned Funds as on date. (b) Confidential Report from the applicant's banker in a sealed cover. (c) A declaration to the effect that no proceedings have been initiated by/ are pending with the Directorate of Enforcement / Directorate of Revenue Intelligence or any other law enforcing authorities against the applicant company or its directors and that no criminal cases are initiated/ pending against the applicant company or its directors. (d) A copy of the KYC / AML / CFT policy framework exist .....

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be made after the expiry of the licence. SECTION V Operational Instructions 1. Bringing in and taking out of Foreign Exchange (i) Foreign exchange in any form can be brought into India freely without limit provided it is declared on the Currency Declaration Form (CDF) on arrival to the Custom Authorities. When foreign exchange brought in the form of currency notes or travellers' cheques does not exceed US$ 10,000/- or its equivalent and / or the value of foreign currency notes does not excee .....

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ases of Foreign Currency from Public (i) Authorised Money Changers (AMCs) / franchisees may freely purchase foreign currency notes, coins and travellers cheques from residents as well as non-residents. Where the foreign currency was brought in by declaring on form CDF, the tenderer should be asked to produce the same. The AMC should invariably insist on production of declaration in CDF. (ii) AMCs may sell Indian Rupees to foreign tourists / visitors against International Credit Cards / Internati .....

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ued, attention of the customers should be drawn to the fact that unspent local currency held by non-residents will be allowed to be converted into foreign currency only against production of a valid encashment certificate. 4. Purchases from other AMCs and Authorized Dealers (ADs) AMCs may purchase from other AMCs and ADs any foreign currency notes, coins and encashed travellers cheques tendered in the normal course of business. Rupee equivalent of the amount of foreign exchange purchased should .....

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ble on a self-declaration basis to the traveller regarding the amount of foreign exchange availed during a financial year. Foreign nationals permanently resident in India are also eligible to avail of this quota for private visits provided the applicant is not availing of facilities for remittance of his salary, savings, etc., abroad in terms of extant regulations. (II) Business visits AMCs may sell foreign exchange to persons resident in India for undertaking business travel or for attending a .....

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However, the settlement in respect of forex pre-paid cards may be effected through AD Category-I banks. In this regard, it is clarified that prepaid foreign currency cards are a form of foreign currency, similar to foreign currency notes or travellers cheques. As such, the authorised dealers/FFMCs selling pre-paid foreign currency cards for travel purposes are required to comply with the same rigorous standards of due diligence and KYC as they would in case they were selling foreign currency no .....

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AMCs may release foreign exchange for travel purposes on the basis of a declaration given by the traveler regarding the amount of foreign exchange availed of during the financial year. AMCs may accept payment in cash below ₹ 50,000/- (Rupees fifty thousand only) against sale of foreign exchange for travel abroad (for private visit or for any other purpose). Wherever the sale of foreign exchange is for the amount equivalent to ₹ 50,000/- and above whether it involves a single drawal .....

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avel abroad (for private visit or for any other purpose) provided- (i) KYC/ AML / CFT guidelines are complied with, (ii) sale of foreign currency/ issue of foreign currency travellers cheques is within the limits (credit/ prepaid cards) prescribed by the bank, (iii) the purchaser of foreign currency/ foreign currency travellers cheque and the credit/ debit/ prepaid card holder is one and the same person. The sale of foreign currency notes and coins within the overall entitlement of foreign excha .....

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nafide reasons, the person is unable to produce an Encashment Certificate after ensuring that the departure is scheduled to take place within the following seven days. Note (2): ADs Category - I, ADs Category - II and FFMCs may provide facility for reconversion of Indian Rupees to the extent of ₹ 50,000/- to foreign tourists (not NRIs) against ATM Receipts based on the following documents. Valid Passport and VISA Ticket confirmed for departure within 7 days. Original ATM slip (to be verifi .....

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lay of Exchange Rate Chart AMCs should display at a prominent place in or near the public counter, a chart indicating the rates for purchase/sale of foreign currency notes and travellers' cheques for all the major currencies and the card rates for any day, should be updated, latest by 10:30 a.m. 10. Foreign Currency Balances AMCs should keep balances in foreign currencies at reasonable levels and avoid build up of idle balances with a view to speculating on currency movements. Franchisees sh .....

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xchange in India, against payment in rupees made by way of account payee crossed cheque / Demand Draft. (ii) Where AMCs are unable to replenish their stock in this manner, they may make an application 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. The import should take place through the designated AD Category-I through whom the application is made. 12. Export .....

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or a guarantee is issued by an international bank of repute covering the full value of the foreign currency notes / coins to be exported. 13. Write-off of fake foreign currency notes In the event of foreign currency notes purchased being found fake/forged subsequently, AMCs may write- off up to US $ 2000 per financial year after approval of their Top Management after exhausting all available options for recovery of the amount. Any write-off in excess of the above amount, would require the appro .....

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s 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. Register of travellers' cheques surrendered to authorized dealers / authorized money changers / exported in form FLM 7. (ii) All .....

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ansfer of foreign currencies should be accounted as stock transfer and not as sales. 15. Submission of Statements to the Reserve Bank AMCs should submit to the office of the Reserve Bank which has issued the license, a monthly consolidated statement for all its offices in respect of sale and purchase of foreign currency notes in form FLM 8 so as to reach not later than the 10th of the succeeding month. AMCs should submit to the Regional Office concerned of the Foreign Exchange Department, Reserv .....

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Reserve Bank as per the prescribed format. An Annual Statement should be submitted by all the AMCs 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, giving the details of the amount written off during the financial year, as per the prescribed format. 16. Inspection of Transactions of AMCs Section 12(1) of Foreign Exchange Management Act 1999, empowers any officer of Reserve Bank speciall .....

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AMCs should put in place a system of Concurrent Audit of the transactions undertaken by them. (ii) All single branch AMCs having a turnover of more than US $ 100,000 or equivalent per month. Single branch AMCs having turnover of less than US $ 100,000 or its equivalent may institute a system of quarterly audit. AMCs having multiple branches, may put in place a system of Concurrent Audit which will cover 80 per cent of the transactions value-wise under a system of monthly audit and rest 20 per c .....

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AMCs are authorized to transact money changing business only at the location or locations specifically indicated in the licence. If it is intended to provide money changing facilities on a temporary basis on certain special occasions, a separate application should be made for the purpose to the Regional Office concerned of the Foreign Exchange Department of the Reserve Bank. Full details such as period for which the exchange counter will be operated, volume of business expected, manner of accou .....

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orted through the specific bank and realized can be credited to the account. (iii) Balances in the accounts shall be utilized only for settlement of liabilities on account of- (a) TCs sold by the AMCs and (b) Foreign currency notes acquired by the AMCs from AD Category-I banks. (iv) No idle balance shall be maintained in the said account. 20. Opening of Nostro Account by Authorised Dealers Category-II Authorised Dealers Category-II may open Nostro Accounts after getting one time approval from th .....

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F All AMCs are required to 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 a certificate from the statutory auditors regarding the NOF as on the date of the balance sheet. As AMCs are expected to maintain the minimum NOF on an ongoing basis, if there is any erosion in their NOF below the minimum level, they are required to bring it to the notice of the Reserve Bank immediately alon .....

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y participate in the designated currency futures and currency options on exchanges recognized by the Securities and Exchange Board of India (SEBI) as clients only for the purpose of hedging their underlying foreign exchange exposures. FFMCs and ADs Category-II which are RRBs, LABs, UCBs and NBFCs, may be guided by the instructions issued by the respective regulatory Departments of the Reserve Bank in this regard. SECTION VI KYC/ AML/ CFT Guidelines Detailed Know Your Customer (KYC) /Anti-Money L .....

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e in future shall, mutatis mutandis, be applicable to all Authorised Persons (APs), their agents and franchisees. SECTION VII Revocation of Licence The Reserve Bank reserves the right to revoke the licence granted to an AMC at any time if the Reserve Bank is satisfied that (a) it is in public interest to do so or (b) the AMC has failed to comply with any condition subject to which the authorisation is granted or has contravened any of the provisions of the Foreign Exchange Management Act, 1999 o .....

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should undertake a process of due diligence to determine the suitability of the person for appointment / continuing to hold appointment as a director on the Board, based upon qualification, expertise, track record, integrity and other fit and proper criteria. For assessing integrity and suitability, factors like criminal record, if any, financial position, civil action initiated to pursue personal debts, refusal of admission to or expulsion from professional bodies, sanctions imposed by regulato .....

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/ non-bank ADs Category - II at the time of appointment / renewal of appointment. (c) The Boards of the FFMCs / non-bank ADs Category - II should constitute Nomination Committees to scrutinize the declarations. (d) Based on the information provided in the signed declaration, Nomination Committees should decide on the acceptance or otherwise and may make references, where considered necessary to the appropriate authority / persons, to ensure their compliance with the requirements indicated. (e) F .....

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l Office concerned of the Foreign Exchange Department, Reserve Bank of India as given in the Master direction on Reporting. (h) Comments of respective Departments of the Reserve Bank will be obtained on the operations of an applicant who / whose parent organisation is already licenced / authorised by the Reserve Bank. Appendix List of A.P.(DIR Series) Circulars which have been consolidated in the Master Direction on money changing activities Sl. No. A.P.(DIR Series) Circular Date 1. A.P. (DIR Se .....

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vember 30, 2010 7 A.P. (DIR Series) Circular No.24 [A.P. (FL/RL Series) Circular No.05] December 13, 2010 8 A.P. (DIR Series) Circular No.25 [A.P. (FL/RL Series) Circular No.06] December 22, 2010 9 A.P. (DIR Series) Circular No.27 [A.P. (FL/RL Series) Circular No.08] December 22, 2010 10 A.P. (DIR Series) Circular No.40 [A.P. (FL/RL Series) Circular No.10] January 25, 2011 11 A.P. (DIR Series) Circular No.49 [A.P. (FL/RL Series) Circular No.11] April 06, 2011 12 A.P. (DIR Series) Circular No.51 .....

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