**Executive Summary**
This document, issued by the Reserve Bank of India, outlines new disclosure requirements for Authorised Dealers offering foreign exchange transactions to retail users. It mandates the disclosure of total transaction costs for specific foreign exchange contracts and specific pricing information for derivative contracts. These instructions take effect three months from the date of issuance.
**Key Points / Main Content**
* **Scope:** The directive applies to Authorised Dealers offering foreign exchange contracts to both retail and non-retail users. The contracts covered include:
* Foreign exchange cash
* Foreign exchange tom
* Foreign exchange spot
* Foreign exchange derivative contracts
* Foreign currency interest rate derivative contracts
* **Disclosure for Derivatives:**
* When offering foreign exchange derivative / foreign currency interest rate derivative to a retail user, Authorised Dealers must provide the mid-market mark/bid and ask price before entering into the contract.
* This pricing information must also be included in the deal confirmation/term sheet.
* **Disclosure for FX Cash, Tom, and Spot:**
* When offering foreign exchange cash, tom, and spot contracts to a retail user, Authorised Dealers must provide details of the total transaction cost before entering the contract.
* The total transaction cost should include all relevant costs and charges, such as sending and receiving fees (including those of any intermediaries), foreign exchange rate, and currency conversion charges.
* These costs must also be included in the deal confirmation.
* **Effective Date:** These instructions will be effective three months from the date of issuance of this circular.
* **Definitions:** The terms "retail user" and "Authorised Dealer" have the same meaning as assigned in the Master Direction - Risk Management and Inter-Bank Dealings dated July 05, 2016.
* **Authority:** These directions are issued under specific sections of the Reserve Bank of India Act, 1934 and the Foreign Exchange Management Act, 1999.
**Impact Analysis**
**Stakeholder: Authorised Dealers**
* **Impact:** Authorised Dealers face increased transparency requirements regarding the disclosure of transaction costs and pricing.
* **Action Required:** Authorised Dealers must update their systems and procedures to ensure compliance with the new disclosure requirements for retail users when offering foreign exchange cash, tom, and spot contracts, as well as foreign exchange derivative and foreign currency interest rate derivative contracts. They must also ensure that deal confirmations include the required information.
**Stakeholder: Retail Users**
* **Impact:** Retail users will receive clearer and more comprehensive information about the total transaction costs associated with foreign exchange contracts, enabling more informed decision-making.
* **Action Required:** Retail users should review the provided information carefully before entering into any foreign exchange contracts.
Key Entities Referenced
Master Direction – Risk Management and Inter-Bank Dealings dated July 05, 2016: A key document providing guidelines related to risk management and inter-bank dealings. This circular provides additional clarifications and instructions related to this Master Direction.
Reserve Bank of India Act, 1934, Section 45W: Legal basis for the circular's directions, granting powers to the Reserve Bank of India.
Foreign Exchange Management Act, 1999, Sections 10(4) and 11(1): Another legal basis for the circular's directions related to foreign exchange management.
RESERVE BANK OF INDIA: The issuing authority of the circular, overseeing financial markets regulation.
Authorised Dealers: The entities to whom the instructions within the circular are directed.
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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