Cancellation of FFMC License: Reasons for Cancellation of License

A Full-Fledged Money Changer is an entity that is approved by the Apex Bank, i.e., RBI, to conduct Money Changing Activities in India. They mainly purchase foreign exchange from the tourists visiting India and sell the same to the people who are visiting foreign countries. That means they deal in the activities concerning Foreign Exchange. However, it shall be considerate to mention that any person who is carrying out any forex activity which is restricted by RBI, the same will result in the Cancellation of FFMC License.

In this blog, we will discuss the concept and reasons for the cancellation of FFMC License, together with the ways to avoid the same.

Concept of Cancellation of FFMC License

The concept of Revocation or Cancellation of FFMC License or Full Fledged Money Changer License is governed by section 10(1) of FEMA 1999. Further, RBI declares cancellation of FFMC License in the two situations as follows:

1. In the Public Interest;
2. If in case, the licensee breaches any of the conditions or stipulations mentioned in the FEMA 1999 or any direction or guideline issued by RBI;

Reasons for Cancellation of FFMC License

The prominent reasons behind the cancellation of FFMC License are as follows:

Improper Bookkeeping

In the operations of FFMC license holder, the process of Bookkeeping plays a significant role. Therefore, it is mandatory for every FFMC licensee to maintain all the transactions and dealings happened in a prescribed manner in an account book.

Further, it shall be significant to note that in order to maintain transparency and clarity, it is mandatory for the license holder to get his/ her accounts audited.

Henceforth, any shortcoming or default in this aspect might increase the chances of the cancellation of FFMC License. Also, it shall be considerate to record that RBI has the power to scrutinize operations of AMC, so again it is the duty of the license holders to maintain the integrity and honesty of the transactions throughout the year.

Disparity in Conversion Rates

In India, FFMC License Holder is responsible for providing forex facilities to both Overseas Citizens and Indian Nationals at an exchange rate decided by the RBI.

However, if in case, the registered entity carries out some unconventional or eccentric modes to alter the existing conversion rate for the sake of earning more profit, then, in that case, RBI will revoke or cancel the FFMC license of such holder.

Violation of Guidelines and Provisions

As we know, the working of an FFMC is driven by specific provisions of FEMA law and the guidelines and directions issued by RBI. That means the same cannot be overlooked by the licensee in any manner.

Also, it shall be significant to state that in order to make any in-house amendments or to carry out business activities, the licensee needs to comply with all the requirements and norms on a mandatory basis, else the same leads to the imposition of hefty penalties by RBI, even the cancellation of FFMC License.

Besides, the reasons mentioned above, there are some additional factors as well that leads to cancellation of FFMC License, which are as follows:

1. In case the company does not implement the mechanism of Concurrent Audit;
2. If in case the Chart displaying the Foreign Exchange Rates is not properly updated;
3. In case the license holders fail to include the list of core members on record;
4. If in case an AMC fails to abide by the provisions concerning payment as specified under the law;

Practices to Avoid Cancellation of FFMC License

The practices that a license holder must incorporate to avoid the event of cancellation of FMC License by RBI:

Display Chart Concerning Foreign Exchange Rate

It is both necessary and compulsory for all the FFMCs to display the prevailing foreign exchange rate chart in the place accessible to the general public. Further, the chart must showcase the exchange rate for both travellers’ cheques and foreign currency notes for all the prominent foreign currencies.

Also, as we know, that the currency exchange rates fluctuate on a frequent basis, therefore, it necessary to update the chart accordingly, and latest by 10:30 a.m. as per Indian Time.

Never Accumulate Fake Currency Notes

If in case an AMC mistakenly obtains fake foreign currency from any customer, then, in that case, it needs to write off the same after taking approval from the Top Level Management.

Further, as per the provisions of the FEMA 1999^[1], the upper limit for disposing off such currencies is restricted to the US $2000 every financial year. Also, the moment AMC surpasses this limit, it will need RBI authorisation to proceed further.

Implement Training Practices for Employees

Every AMC must implement Training Practice or Employee Training Programmes for all the members working within the said organisation. Further, to ensure integrity and transparency within these training modules must include procedures and policies relating to money changing activities.

Avoid Build-up Foreign Currency

Based on the provisions of the FEMA 1999, it is necessary for every AMC to maintain an optimum level of foreign exchange. That means any build-up in the respect will ultimately hinder the performance of the company in the longer run.

Also, it shall be significant to state that the majority of transactions happening between Authorised Dealers and AMCs must discourage payment of cash.

Moreover, all the transactions concerning foreign currency notes is limited to the provisions and guidelines issued by RBI.

Conduct Regular Audit of Financial Affairs to Confirm Transparency

If in case an AMC or Authorised Money Changer is earning any income which is more than the set threshold limit, then, in that case, it must conduct a financial audit to ensure integrity and transparency.

Also, it is mandatory for a money changer to maintain its record properly, so that the same can be used as a reference in the case of scrutiny. Moreover, as per section 12 (1) of FEMA 1999 (Foreign Exchange Management Act), the officers designated by RBI has the authority to audit the financial affairs and investigate the books of accounts of AMC anytime.

Further, it is mandatory for all the core members of an AMC to cooperate and assist the investigation officers during the process of audit, else the same would be considered as a violation of the provisions of FEMA and may lead to cancellation of FFMC License as well.

Conclusion

In a nutshell, it will be right to state that FFMCs play a crucial part in the growth of Indian Economy. They are accountable and responsible to handle all the activities concerning forex trading and currency exchange based on the norms decided by the RBI.

That means any person or an entity who wish to start money changer license business must abide by all the guidelines and directions issued by RBI, else the same will result in the cancellation of FFMC License by RBI, together with the levy of hefty penalties.

Also, Read: A Complete Guide: Renewal of Full Fledged Money Changer License