RBI Unveils Draft Licensing Framework for Authorised Persons

• 28 Dec 2023

The Reserve Bank of India (RBI) has recently published a draft 'Licensing Framework for Authorised Persons (APs)' under the Foreign Exchange Management Act (FEMA), 1999, with a focus on enhancing the authorization framework for money changers.

• The move aims to adapt to the widespread availability of banking services, explore innovative models for foreign exchange services, and expand the offerings of AD-Category II entities.

Key Points

• Rationalising Authorization Framework: The draft norms aim to rationalize the authorization framework for money changers, considering the wide accessibility of banking services to the public.
• Review of Regulatory Framework: The RBI emphasizes a comprehensive review of the regulatory framework for Authorised Persons (APs) to meet the evolving needs of India's rapidly growing economy.
• Operational Efficiency Objective: The central bank, in its June monetary policy meeting, expressed the goal of simplifying the licensing framework for APs to enhance operational efficiency in delivering foreign exchange facilities to individuals, tourists, and businesses.
• New Category of Money Changers: The draft proposes the introduction of a new category of money changers, Forex Correspondents (FxCs), operating through an agency model with Category-I and Category-II Authorised Dealers. These entities would not require separate authorization from the Reserve Bank.
• Perpetual Authorisation: The RBI suggests the perpetual renewal of existing authorizations as AD Category-II, subject to meeting revised eligibility criteria, to encourage ease of doing business.
• Trade-Related Transaction Expansion: AD Category-II entities are proposed to facilitate trade-related transactions up to Rs 15 lakh per transaction, aiming to broaden business scope and foster innovation and competition.
• Introduction of FCS Scheme: A new scheme, FCS (Forex Correspondent Scheme), is proposed based on a principal-agency model, allowing AD Category-I or AD Category-II to act as the principal for FxCs. The FxCs would enter into agency agreements with AD Category-I or AD Category-II under the FCS.