**Executive Summary**
This is a draft circular from the Reserve Bank of India (RBI) to all Authorised Dealers regarding the disclosure of transaction costs for foreign exchange transactions. It builds upon the existing Master Direction (Risk Management and Inter-Bank Dealings dated July 05, 2016), and mandates increased transparency in cost disclosure for retail users. The instructions are applicable with effect from three months from the date of issuance of these instructions.
**Key Points / Main Content**
* **Scope:** The circular addresses the disclosure of transaction costs for foreign exchange contracts involving INR or otherwise, offered to both retail and non-retail users. These contracts include:
* Foreign exchange cash
* Foreign exchange tom
* Foreign exchange spot
* Foreign exchange derivative contracts
* Foreign currency interest rate derivative contracts
* **Foreign Exchange Derivative and Foreign Currency Interest Rate Derivative Disclosure:** Authorised Dealers must provide the mid-market mark / bid and ask price of the derivative before entering into the contract with a retail user. This must also be included in the deal confirmation / term sheet.
* **Foreign Exchange Cash, Tom and Spot Disclosure:** When offering foreign exchange cash, tom, and spot contracts to retail users, Authorised Dealers must provide details of the total transaction cost, including all relevant costs and charges (e.g., sending and receiving fees, intermediary fees, exchange rate, and currency conversion charges) before contract initiation. These details must also be included in the deal confirmation.
* **Definitions:** The terms 'retail user' and 'Authorised Dealer' carry the same meaning as defined in the Master Direction.
* **Legal Basis:** The directions are issued under Section 45W of the Reserve Bank of India Act, 1934 and Sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999.
* **Effective Date**: These instructions shall be applicable with effect from three months from the date of issuance of these instructions.
**Impact Analysis**
**Stakeholder: Authorised Dealers**
* **Impact:** Authorised Dealers are required to enhance their disclosure practices for foreign exchange transactions, particularly for retail users, to include more detailed cost information upfront.
* **Action Required:** Authorised Dealers must update their systems and procedures to capture and disclose the total transaction cost (including all fees and charges) for foreign exchange cash, tom and spot contracts and to display the mid-market mark/bid and ask price of the derivative before entering into the contract with a retail user.
Key Entities Referenced
Master Direction – Risk Management and Inter-Bank Dealings dated July 05, 2016: A comprehensive direction issued by RBI governing risk management and inter-bank dealings, and relevant to foreign exchange transactions as referenced in the document.
Reserve Bank of India Act, 1934, Section 45W: The section of the RBI Act under which the circular's directions are issued.
Foreign Exchange Management Act, 1999, Sections 10(4) and 11(1): The sections of the FEMA Act under which the circular's directions are issued.
Reserve Bank of India: The issuing authority of the circular, responsible for regulating financial markets.
RESERVE BANK OF INDIA
FINANCIAL MARKETS REGULATION DEPARTMENT
9TH FLOOR, CENTRAL OFFICE, FORT
MUMBAI 400 001
To,
All Authorised Dealers
Madam/Sir,
Disclosure of transaction cost for foreign exchange transactions - Draft
A reference is invited to the Master Direction – Risk Management and Inter-Bank
Dealings dated July 05, 2016, as amended from time to time (hereinafter referred as
‘Master Direction’), in terms of which Authorised Dealers have been permitted to offer the
following foreign exchange contracts, involving INR or otherwise, to users (both retail and
non-retail):
a. foreign exchange cash;
b. foreign exchange tom;
c. foreign exchange spot;
d. foreign exchange derivative contracts; and
e. foreign currency interest rate derivative contracts.
2. In terms of the aforesaid Master Direction, while offering foreign exchange derivative /
foreign currency interest rate derivative to a retail user, an Authorised Dealer shall provide
the mid-market mark / bid and ask price of the derivative before entering into the contract
and the same must also be included in the deal confirmation / term sheet.
3. Further to this, on a review, it has been decided that while offering foreign exchange
cash, foreign exchange tom and foreign exchange spot contracts to a retail user,
Authorised Dealers shall provide to the user, details of the total transaction cost (showing
all relevant costs and charges viz., sending and receiving fees including those of any
intermediaries, foreign exchange rate and currency conversion charges), before entering
into the contract and also include the same in the deal confirmation.4. These instructions shall be applicable with effect from three months from the date of
issuance of these instructions.
5. For the purpose of this circular, ‘retail user’ and ‘Authorised Dealer’ shall have the
same meaning as assigned in the Master Direction.
6. The directions contained in this circular have been issued under Section 45W of the
Reserve Bank of India Act, 1934 and Sections 10(4) and 11(1) of the Foreign Exchange
Management Act, 1999 (42 of 1999) and are without prejudice to permissions / approvals,
if any, required under any other law.
Yours faithfully,
(Dimple Bhandia)
Chief General Manager
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