Executive Summary:
The Reserve Bank of India (RBI) has observed instances of unauthorized entities offering forex trading facilities to Indian residents. These entities often use local agents and domestic payment systems to facilitate these unauthorized transactions. This circular advises Authorised Dealer Category-I (AD Cat-I) banks to increase vigilance, report suspicious accounts to the Directorate of Enforcement, and educate customers about authorized forex trading channels.
Key Points / Main Content:
* **Unauthorized Forex Trading:**
* RBI has identified unauthorized entities offering forex trading facilities with promises of disproportionate returns.
* These entities engage local agents to open accounts for collecting funds and use domestic payment systems for transactions.
* **FEMA Regulations:**
* Banks are reminded of Section 3(a) of FEMA, 1999, which prohibits dealing in foreign exchange with unauthorized persons.
* Foreign exchange derivative contracts must be conducted with authorized dealers or on recognized exchanges, as per FEMA regulations.
* Operating an Electronic Trading Platform (ETP) requires prior authorization from the RBI.
* **RBI Guidance:**
* AD Cat-I banks should refer to RBI press releases cautioning against unauthorized forex trading platforms.
* Banks should also refer to the RBI's Alert List of entities unauthorized to deal in forex or operate ETPs.
* **AD Cat-I Bank Responsibilities:**
* Banks must be more vigilant to prevent misuse of banking channels for unauthorized forex trading.
* Suspicious accounts used for unauthorized forex trading must be reported to the Directorate of Enforcement.
* Banks should inform customers to deal in forex only with Authorised Persons and on authorized ETPs.
* Banks are to publicize the list of Authorised Persons, authorized ETPs, and the RBI's Alert List and Press Releases.
Impact Analysis:
* **Authorised Dealer Category-I (AD Cat-I) Banks:**
* *Impact:* Increased scrutiny of account activity and reporting obligations.
* *Action Required:* Increase vigilance, report suspicious accounts to the Directorate of Enforcement, and inform customers about authorized forex trading channels, publicise relevant lists.
* **Customers of AD Cat-I Banks:**
* *Impact:* Need to be aware of the risks of unauthorized forex trading platforms.
* *Action Required:* Deal in forex only with Authorised Persons and on authorized ETPs; be aware of entities on the RBI's Alert List.
* **Directorate of Enforcement:**
* *Impact:* Will receive reports of suspicious accounts from AD Cat-I banks.
* *Action Required:* Take appropriate action on reports of accounts used to facilitate unauthorised forex trading.
Key Entities Referenced
Reserve Bank of India: The central bank of India, responsible for regulating the banking sector and foreign exchange transactions.
Foreign Exchange Management Act, 1999: An act of the Parliament of India to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India.
Authorised Dealer Category I Banks: Banks authorized by the Reserve Bank of India to deal in foreign exchange.
Electronic Trading Platforms: Platforms where financial instruments, including foreign exchange, are traded electronically.
Foreign Exchange Derivative Contracts Regulations, 2000: Regulations pertaining to foreign exchange derivative contracts as outlined in Notification No. FEMA 25/2000-RB.
Mumbai, Maharashtra: City in India where the central office of the Reserve Bank of India is located.
Directorate of Enforcement, Government of India: A law enforcement agency responsible for investigating economic crimes and foreign exchange violations.
Alert List: List issued by the Reserve Bank of India containing names of entities which are neither authorised to deal in forex under FEMA, 1999 nor authorised to operate ETP for forex transactions under the Electronic Trading Platforms Reserve Bank Directions, 2018.
भारतीय ररज़र्व बैंक
RESERVE BANK OF INDIA
RBI/2024-25/25
A.P. (DIR Series) Circular No.02
April 24, 2024
To,
The Authorised Dealer Category – I Banks
Madam / Sir,
Unauthorised foreign exchange transactions
The Reserve Bank of India (RBI) has come across instances of unauthorised entities
offering foreign exchange (forex) trading facilities to Indian residents with promises of
disproportionate/exorbitant returns. On investigation, it has been observed that to
facilitate unauthorised forex trading, these entities have taken recourse to engaging
local agents who open accounts at different bank branches for collecting money
towards margin, investment, charges, etc. These accounts are opened in the name of
individuals, proprietary concerns, trading firms etc. and the transactions in such
accounts are not found to be commensurate with the stated purpose for opening the
account in several cases. It is also observed that these entities are providing options
to residents to remit/deposit funds in Rupees for undertaking unauthorised forex
transactions using domestic payment systems like online transfers, payment
gateways, etc.
2. In this context, attention of Authorised Dealer Category-I (AD Cat-I) banks is invited
to:
a) Section 3 (a) of the Foreign Exchange Management Act (FEMA), 1999, in terms
of which, no person shall deal in or transfer any foreign exchange or foreign
security to any person not being an ‘Authorised Person’, unless under general
or special permission of the Reserve Bank;
वित्तीय बाज़ार विवियमि विभाग, केंद्रीय कायाालय, 9िी मंविल, केन्द्द्रीय कायाालय भिि, शहीद भगत स ंह मागा, फोर्ा, म ंबई – 400 001
फोि: (91-22) 2260 1000, फैक् : (91-22) 22702290, ई-मेल: cgmfmrd@rbi.org.in
Financial Markets Regulation Department, Central Office, 9th Floor, Central Office Building, Shahid Bhagat Singh Road, Fort,
Mumbai – 400 001
Tel: (91-22) 2260 1000, Fax: (91-22) 22702290, E-mail: cgmfmrd@rbi.org.in
हिन्दी आसान िै, इसका प्रयोग बढ़ाइएb) Regulation 4 read with Schedule I of the Foreign Exchange Management
(Foreign Exchange Derivative Contracts) Regulations, 2000 (Notification No.
FEMA 25/2000-RB dated May 3, 2000), as amended from time to time, in terms
of which, a person, whether resident in India or resident outside India, may enter
into a foreign exchange derivative contract with an authorised dealer or on
recognised exchanges, only;
c) Para 3 (1) of the Electronic Trading Platforms (Reserve Bank) Directions, 2018
dated October 05, 2018, in terms of which, no entity shall operate an Electronic
Trading Platform (ETP) without obtaining prior authorisation of the Reserve
Bank;
d) Press releases dated February 03, 2022, September 07, 2022 and February
10, 2023 issued by the Reserve Bank, cautioning against unauthorised forex
trading platforms; and
e) ‘Alert List’ issued by the Reserve Bank containing names of entities which are
neither authorised to deal in forex under FEMA, 1999 nor authorised to operate
ETP for forex transactions under the Electronic Trading Platforms (Reserve
Bank) Directions, 2018.
3. There is a need for greater vigilance to prevent the misuse of banking channels in
facilitating unauthorised forex trading. AD Cat-I banks are, therefore, advised to be
more vigilant and exercise greater caution in this regard. As and when AD Cat-I banks
come across an account being used to facilitate unauthorised forex trading, they shall
report the same to the Directorate of Enforcement, Government of India, for further
action, as deemed fit.
4. AD Cat-I banks may bring the contents of this circular to the notice of their
constituents and customers concerned. AD Cat-I banks may advise their customers
to deal in forex only with ‘Authorised Persons’ and on ‘authorised ETPs’ and give wide
publicity to the list of ‘Authorised Persons’ and the list of ‘authorised ETPs’ available
on the RBI website. AD Cat-I banks are also advised to give publicity to the ‘Alert List’
and Press Releases issued by the RBI in this regard.
25. The directions contained in this circular have been issued under 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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