**Executive Summary**
This Reserve Bank of India (RBI) circular addresses the disclosure of transaction costs for foreign exchange transactions by Authorised Dealers. It amends the Master Direction - Risk Management and Inter-Bank Dealings dated July 05, 2016. The instructions are effective three months from the date of issuance.
**Key Points / Main Content**
* **Scope of Foreign Exchange Contracts:**
* Applies to foreign exchange cash, tom, spot, derivative contracts, and foreign currency interest rate derivative contracts involving INR or otherwise, offered to retail and non-retail users.
* **Disclosure Requirements for Derivatives:**
* When offering foreign exchange derivatives/foreign currency interest rate derivatives to retail users, Authorised Dealers must provide the mid-market mark/bid and ask price before entering into the contract.
* This information must also be included in the deal confirmation/term sheet.
* **Disclosure Requirements for Cash, Tom and Spot Transactions:**
* 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 (sending and receiving fees, intermediary fees, exchange rate and conversion charges).
* This information must be included in the deal confirmation.
* **Effective Date:**
* The instructions are effective three months from the date of issuance of the circular.
* **Definitions:**
* "Retail user" and "Authorised Dealer" have the same meaning as assigned in the Master Direction.
**Impact Analysis**
**Stakeholder: Authorised Dealers**
* **Impact:** Increased transparency and disclosure requirements when dealing with retail users in foreign exchange transactions.
* **Action Required:** Update procedures to provide retail users with complete cost disclosures (including intermediary fees) before entering into contracts for foreign exchange cash, tom, spot, and derivative transactions. Include the required cost details and price information in deal confirmations/term sheets.
**Stakeholder: Retail Users**
* **Impact:** Enhanced transparency regarding all costs associated with foreign exchange transactions, enabling more informed decision-making.
* **Action Required:** Review cost disclosures provided by Authorised Dealers before entering into foreign exchange contracts to ensure transparency and understanding of all applicable fees and charges.
Key Entities Referenced
Master Direction – Risk Management and Inter-Bank Dealings dated July 05, 2016: A key policy document related to risk management and inter-bank dealings referenced in the circular, serving as the foundation for the new disclosure requirements.
Reserve Bank of India Act, 1934: The act granting the Reserve Bank of India its powers, used as the basis for issuing the circular.
Foreign Exchange Management Act, 1999: The act governing foreign exchange in India, used as the basis for issuing the circular.
Authorised Dealers: Financial institutions permitted to offer foreign exchange contracts and subject to the disclosure requirements.
Reserve Bank of India: India's central bank and the issuer of the circular.
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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