RBI Update – 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.

In this context, attention of Authorised Dealer Category-I (AD Cat-I) banks is invited to:

1. 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;
2. 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;
3. 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;
4. 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
5. ‘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.

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.

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’

Link – https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12671&Mode=0