Executive Summary:
The Reserve Bank of India (RBI) has observed instances of unauthorized entities offering forex trading facilities to Indian residents and misusing banking channels. This circular advises Authorised Dealer Category-I (AD Cat-I) banks to increase vigilance, report suspicious accounts to the Directorate of Enforcement, and educate their customers to deal in forex only with authorized persons and on authorized Electronic Trading Platforms (ETPs). It also advises AD Cat-I banks to publicize the Alert List and Press Releases issued by the RBI.
Key Points / Main Content:
* **Unauthorised Forex Trading:**
* RBI has found unauthorized entities offering forex trading with promises of high returns.
* These entities engage local agents who open accounts to collect money for margins, investments, etc.
* Residents are provided options to remit funds in Rupees for forex transactions using domestic payment systems.
* **Regulatory References:**
* Section 3(a) of FEMA, 1999: No person shall deal in foreign exchange with unauthorized persons without RBI permission.
* Regulation 4 of FEMA 25/2000-RB: Foreign exchange derivative contracts are permitted only with authorized dealers or on recognized exchanges.
* Para 3.1 of Electronic Trading Platforms Directions, 2018: Operating an ETP requires prior RBI authorization.
* RBI Press Releases: Cautions against unauthorized forex trading platforms.
* RBI Alert List: Contains names of entities not authorized to deal in forex or operate ETPs.
* **AD Cat-I Banks Responsibilities:**
* Exercise greater caution to prevent misuse of banking channels.
* Report accounts used to facilitate unauthorized forex trading to the Directorate of Enforcement.
* Inform customers about dealing in forex only with Authorised Persons and on authorized ETPs.
* Publicize the list of Authorised Persons and authorized ETPs available on the RBI website.
* Give publicity to the Alert List and Press Releases issued by the RBI.
* **Legal Basis:**
* The directions are issued under sections 10(4) and 11(1) of FEMA, 1999.
Impact Analysis:
* **Authorised Dealer Category-I (AD Cat-I) Banks**
* Impact: Required to enhance vigilance, monitor accounts, report suspicious activities, and educate customers.
* Action Required: Increase vigilance, report suspicious accounts to the Directorate of Enforcement, inform customers, and publicize relevant lists and releases from the RBI.
* **Customers of AD Cat-I Banks**
* Impact: Need to be aware of the risks of unauthorized forex trading and ensure they only use authorized channels.
* Action Required: Deal in forex only with Authorised Persons and on authorized ETPs, and be aware of the RBI's Alert List and Press Releases.
* **Directorate of Enforcement, Government of India**
* Impact: Will receive reports of accounts suspected of facilitating unauthorized forex trading for further investigation and action.
* Action Required: Take appropriate action on reports of accounts used to facilitate unauthorized forex trading, as deemed fit.
Key Entities Referenced
Reserve Bank of India: The central bank of India, responsible for regulating the banking sector and foreign exchange.
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.
Directorate of Enforcement, Government of India: A law enforcement agency and economic intelligence agency responsible for enforcing economic laws and fighting economic crime in India.
Foreign Exchange Derivative Contracts Regulations, 2000: Regulations pertaining to foreign exchange derivative contracts as specified by the Reserve Bank of India.
Electronic Trading Platforms Reserve Bank Directions, 2018: Directions issued by the Reserve Bank of India governing the operation of electronic trading platforms.
Mumbai, Maharashtra: Financial center of India, location of the Reserve Bank of India Central Office.
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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