According to Section 10 of the Foreign Exchange Management Act, 1999, any business that seeks to engage itself in the money changers activity must acquire Full Fledged Money Changer License...
The Foreign Exchange Reserves or Forex are the essential assets held by the RBI in foreign currencies. These assets influence the country’s monetary policy, international trade and exchange rate. To carry out the activities related to foreign or currency exchange, a company needs to obtain Money Changer License or AMC License from RBI.
RBI grants this license to those businesses which deal explicitly with currency exchange. These licensed places are known as Full-Fledged Money Changers or Authorised Money Changers. In this learning blog, we will discuss in detail about the concept of Full-Fledged Money Changer License.
Concept of Full-Fledged Money Changer License
In India, any company that wants to carry out activities of foreign currency exchange needs to obtain the FFMC license (Full-Fledged Money Changer License) from the RBI. After obtaining the license, the FFMC License holders or the Authorised Money Changers needs to abide by all the guidelines issued vide a Master Circular by the Reserve Bank of India. These guidelines act as instruction on money changing activities.
Further, the rules and regulation relating to foreign currency exchange operations and authorised money changers are provided under the Foreign Exchange Management Act, 1999, which acts as the governing law for foreign exchange in India.
Who are Authorised Money Changers?
As per Section 2 of the FEMA Act, 1999, an “authorised person”means an entity who has been authorised to conduct activities related to foreign exchange. Further, an authorised person includes an Authorised Dealer, Off-shore Banking Unit, Authorised Money Changeror any other such person.
An Authorised Money Changer buys foreign exchange from the people visiting India and then sells the same for certain approved activities like conversion of coins, currency notes and traveller’s cheque.
In India, the Authorised Money Changers are bifurcated into three parts:
- Authorised Dealer Category- I Banks
- Authorised Dealer Category- II
- Full-Fledged Money Changer
Any company that wishes to work as an authorised money changer needs to obtain FFMC License or Money Changer License from RBI. For securing the FFMC License, a company needs to file an application to the RBI. After receiving the license, it becomes liable to follow all the guidelines issued by RBI vide its Master Circular  .
Is it Mandatory to obtain Money Changer License from RBI?
Yes, a company must obtain Money Changer License from RBI under section 10 of the FEMA Act, 1999  , to undertake activities related to foreign exchange. Any person found carrying out money changing business activities without obtaining a valid licence issued by the Apex Bank would be liable to be penalised under the Foreign Exchange Management Act, 1999.
Basic Requirements to Obtain Money Changer License from RBI in India
The basic requirements that a company must satisfy for obtaining Money Changer License in India are as follows:
- The applicant company must be registered under the provisions of Companies Act, 2013;
- To operate a single branch, the applicant must have at least Rs 25 lakhs as its NOF (Net Owned Funds);
- To operate from multiple branches, the applicant must have at least Rs 50 crores as its NOF;
- The Memorandum of Association (MOA) of the company must state in its Object Clause that it wishes to operate as a money exchanger in India;
- The directors of the company must not have any pending criminal or civil case against them with the Department of Revenue Intelligence.
- The newly licensed company or Authorized Money Changer must execute its foreign currency business operation within six months from the date of issuance of FFMC License.
Activities Permitted for Money Changer License Holders
In India, the activitiesthat a Money Changer License holder can carry out are as follows:
- Money Changer License holders can perform activities relating to the conversion of foreign currency, notes and traveller cheques into Indian Currency;
- To carry out the restricted money changing business, FFMC License holder needs to enter into a Franchise Agreement.
- Money Changer License holders can freely buy foreign currency, coins, and traveller’s cheques from both Indian residents and NRIs. Moreover, to allow their franchises to carry out these activities legally, FFMC License holders can extend their license;
- AMC License holder scan sell Indian currency to foreigners against their International Debit or Credit Card;
- They can also sell foreign exchange currency against personal visits, business transactions and Forex prepaid cards.
Documents Needed to Obtain Money Changer License from RBI
The documents needed by a company to obtain Money Changer License from RBI are as follows:
- A copy of the COI (Certificate of Incorporation) of the company;
- A copy of the COC (Certificate of Commencement) of the company;
- A copy of the company’s Memorandum of Association (MOA) stating in its Object Clause that the said company wishes to operate as a money exchanger in India;
- A copy of the company’s Articles of Association;
- A copy of the latest audited financial accounts of the company;
- A copy of the certificate from statutory auditors that certifies the NOF of the company;
- Copies of the company’s audited balance sheet and Profit & Loss Account for the last three financial years;
- Bank’s Confidential Report in a sealed cover;
- Details regarding the nature of business;
- Details regarding associated any associated companies operating in Financial Sector;
- A copy of the duly certified Board Resolution allowing the company to carry out money changing activities;
- A copy of the declaration regarding the policy framework on Anti-Money Laundering/ Know Your Customer/ Combating the Financing of Terrorism customer data;
- A copy of the declaration stating that the Department of Revenue Intelligence has never carried out any investigation against Directors of the Company.
Procedure to Obtain Money Changer License from RBI
The steps involved in the procedure to obtain money changer license from RBI can be summarised as:
- Application for Money Changer License to RBI: In the first step, the directors file an application in the form of Annexure-II with the regional office of the Reserve Bank of India. The company submits the application form along with the documents as prescribed by the RBI.
- Fit and Proper Criteria: To obtain Money Changer License from RBI, the company must satisfy the Fit and Proper Criteria. According to this criterion, there must not be any pending civil or criminal case against the directors or the company with the Department of Revenue Intelligence. If the fit and proper criteria is not met, the RBI disqualifies the applicant company from obtaining the FFMC License.
The Board of Directors (BOD) needs to undergo the process of Due Diligence to make sure that the fit and proper criteria is duly met and to determine the expertise, integrity, qualifications and track record of the person being appointed as Director.
Additionally, an applicant must satisfy the following:
- Should not be above 70 years in age;
- Should not be a Member of Legislative Assembly or council, Member of Parliament;
- Should not have any previous criminal record;
- Should not have received any sanctions from the regulatory bodies;
- Should not have a history of fraudulent practice.
- Empowered Committee Clearance: The application for Money Changer License proceeds further only if the Empowered Committee gives clearance after all the verification.
- Review by the Reserve Bank of India: After obtaining clearance, the RBI reviews the application and documents submitted by the company, and decides whether the company meets the fit and proper criteria or not. If the RBI is of positive opinion, it issues the money changer license to the applicant company within 2 or 3 months.
- Commencement of Business: After receiving the FFMC License, the company needs to start its business operations within six months. Moreover, the company also needs to submit the duplicate copy of Possession Certificate, Lease Agreement, Shop and Establishment License with the RBI before commencing the business operations.
The requirements that a company needs to fulfil after obtaining the Money Changer License from RBI can be summarised as:
- The directors need to file a copy of the Possession Certificate, Lease Agreement, Shop and Establishment License with the RBI before commencing any money exchange activities;
- The company needs to comply with all the guidelines and circulars as issued by the Apex Bank;
- The company requires to display of a copy of Money Changer License at every place of business;
- For carrying out the activities of foreign exchange smoothly, the company needs to implement a system of Concurrent Audit;
- The company needs to submit its Annual Audited Balance Sheet to the regional office of the Reserve Bank of India.
Maintenance of Records and Registers
After obtaining the Money Changer License from RBI, the company needs to maintain the records and registers as follows:
|FLM- 1||For the purpose of summarising the financial details and records of foreign currency, notes/ coins on a daily basis.|
|FLM- 2||For the purpose of summarising the records of cheques received by travellers.|
|FLM- 3||For the purpose of summarising the records related to the purchase of foreign currencies from the general public.|
|FLM- 4||For the purpose of summarising the records related to the purchase of foreign currency from the Authorized Money Changers.|
|FLM- 5||For the purpose of summarising the details regarding the sale of foreign currency, notes/coins or traveller’scheques to the public.|
|FLM- 6||For the purpose of summarising the records related to the sale of foreign currency notes/ coins and traveller’s cheques to Overseas Banks, Authorized Money Changers.|
|FLM- 7||For the purpose of summarising the records related to the sale of traveller’s cheques to Authorised Money Changers, Authorised Dealer, Full-Fledged Money Changer License Holders.|
Inspection by the RBI
The Reserve bank of India has the authority to inspect and examine the books of accounts and documents of a Full-Fledged Money Changer License Holder. The Apex Court has been given this power through Section 12(1) of the FEMA, 1999. An FFMC License Holder must abide by these requirements and also accommodate the Inspecting Officers for the smooth performance of such inspections.
If a company fails to present its records and books or accounts or provide any material information during such inspections, the Inspecting officer may hold the company liable for contravening the provisions of the Foreign Exchange Management Act, 1999.
The irregularities for which an Inspecting officer may hold the FFMC License Holder liable can be summarised as:
- If the system of Concurrent Audit is not implemented correctly;
- If the FFMC License Holder is not performing its Concurrent Audits on time;
- If the FFMC License Holder is not updating or displaying the foreign exchange rate at its place of business;
- If the FFMC License Holder considers the foreign exchange transactions carried out within a month as multiple transactions instead ofa single deal;
- Form FLM-1 displays a negative figure of foreign exchange;
- The FFMC License Holder does not specify the name of a principal officer or authorised persons in the records;
- The copies of Circulars and guidelines issued by the RBI are not available at the company’s place of business;
- The FFMC License Holder has defaulted by making payment of more than US$ 1000 in cash in place of account payee cheque;
- The CDF (Currency Declaration Form) is not kept on record by the FFMC License Holder.
Revocation of Money Changer License
In India, the RBI can cancel or revoke the Money Changer License issued to the Authorised Money Changer in the situation as follows:
- In the interest of the public;
- If the Authorised Money Changer has failed to abide by the provisions of the FEMA Act, 1999, and the guidelines, circulars, regulations issued by the RBI.
Further, the Apex bank also reserves the right to revokeor change any of the existing conditions or requirements for obtaining Money Changer License from RBI.
Renewal of Money Changer License from RBI
To renew the Full-Fledged Money License, the directors of the company needs to file an application of renewal one month before the date of the expiry of such license. In case, a company fails to file the application of renewal within time, the application gets rejected when filed. However, the previous license remains valid till the time company receives the rejection. Moreover, a company will not be eligible to file the application after the expiry of the FFMC License.
Documents Needed for the Renewal of Money Changer License from RBI
In India, the documents needed for the renewal of Money Changer License from RBI are:
- A copy of the Original issued;
- A copy of the latest Audited Balance Sheet;
- A copy of the duly certified statement regarding the NOF (Net Owned Fund) by a Practising CA;
- Bank’s Confidential Report in a sealed cover;
- A declaration on the company’s letterhead dates, signed and stamped for the non-involvement in Department of Revenue Intelligence (DRI) criminal cases;
- A certificate issued by the CA for conformity with Anti Money Laundering guidelines, Concurrent Audit System and Internal Control;
- Latest Shop and Establishment License;
- A copy of KYC (Know Your Customer) Policy as per the KYC Guidelines issued by RBI;
- Fit and Proper Criteria together with the details of all the directors;
- List of Shareholders along with the details of their shareholdings;
- Details about the branches or franchisees of the company.
Any company that wants to carry out the business activities of foreign exchange in India needs to mandatorily obtain Money Changer License from RBI. However, the process and documentation for obtaining Money Changer License from RBI is a tedious and back-breaking task, as it involves multiple documentation and compliance requirements. The Reserve Bank has also become stringent in issuing FFMC license because companies are directly dealing with the public’s money. Therefore, a company needs to consult a FEMA and RBI Expert before undergoing the process of registration to understand the numerous post-license requirements that a money changer business needs to meet.