Authorised person under FEMA

Last Updated on September 27, 2023 by BFSLTeam BFSLTeam

In the realm of foreign exchange, the Reserve Bank of India (RBI) doesn’t solely manage all transactions. Consequently, the RBI has entrusted its powers to authorised persons under FEMA (Foreign Exchange Management Act). These authorized individuals are empowered to engage in foreign exchange and international securities transactions. This brings us to the pivotal role played by FEMA in regulating and facilitating foreign exchange activities, ensuring a smooth and compliant functioning of the financial ecosystem in India.

The Foreign Exchange Management Act (FEMA) is a pivotal regulatory framework in India that meticulously oversees the management of foreign exchange. The Reserve Bank of India (RBI) has been entrusted with the authority to designate specific individuals or entities as authorised persons under FEMA section 10 for conducting transactions involving foreign securities. 

These sub-brokers under FEMA as defined in FEMA Section 2(c), encompass a diverse range of entities, including offshore banking units, money changers, and approved dealers. These entities possess the legal authorization to engage in the trading of foreign securities and foreign exchange within the country’s boundaries. FEMA’s provisions are instrumental in maintaining the integrity and efficiency of India’s foreign exchange operations.

Also Read: Authorised Person Exam

Different Categories Of Authorised Persons Under Fema 

Authorized Dealers (ADs):

• Authorized Dealers are typically established banks that have received formal authorization from the Reserve Bank of India (RBI) to engage in a wide spectrum of foreign exchange transactions. Their pivotal role encompasses facilitating foreign exchange-related activities for both individuals and businesses. This includes assisting in remittances, managing outward investments, and handling import/export-related transactions. 

• ADs act as essential intermediaries, ensuring that foreign exchange operations adhere to the regulatory framework set by FEMA, thereby promoting the smooth flow of currency in and out of the country.

• Authorized Dealers under FEMA encompass various categories of financial institutions, including commercial banks like State Bank of India (SBI) and HDFC Bank, cooperative banks such as Karnataka State Cooperative Apex Bank (KSCAB), regional rural banks like Punjab Gramin Bank, scheduled banks exemplified by Axis Bank, foreign banks like Citibank, and cooperative credit societies such as The Cosmos Cooperative Bank. 

• These distinct categories of ADs collectively play a crucial role in facilitating an extensive array of foreign exchange services, catering to the diverse needs of individuals and businesses across India, and ensuring accessibility and convenience in foreign currency transactions.

Full-Fledged Money Changers (FFMCs):

• Full-fledged money Changers are entities that have received explicit authorization from the RBI to engage in the exchange of foreign currency in various forms, including notes, coins, and travellers’ cheques.

• Beyond mere currency exchange, FFMCs also offer valuable services such as the issuance of prepaid forex cards, catering to the specific needs of travellers, and effectively managing outward remittances. Their role contributes to the accessibility and convenience of foreign exchange services for both domestic and international clientele.

Authorised Money Changers (AMCs):

• Authorised Money Changers are entities specifically sanctioned by the RBI to operate in the foreign exchange domain for designated purposes. Typically found at airports or specific locations, AMCs cater to the immediate needs of travellers and tourists by offering foreign exchange services.

• Their authorization is limited in scope but serves a critical role in ensuring that travellers have access to essential foreign currency exchange facilities.

Authorized Banks:

• Some banks, beyond their role as Authorized Dealers (ADs), may receive additional authorization from the RBI to handle particular transactions or services under FEMA. This additional authorization allows these banks to engage in specialized activities related to foreign exchange or foreign securities. 

• Their dual status as banks and authorized entities enhances the efficiency and comprehensiveness of financial services available to the public.

It is crucial to recognize that the roles and responsibilities of these authorized persons may vary based on their specific authorizations, updates in policy and the regulatory landscape at any given time. 

Process For Becoming An Authorised Person

To become an Authorized Person under FEMA in India, individuals or entities must apply for authorization through the Reserve Bank of India (RBI). The application process typically involves submitting necessary documentation, demonstrating financial stability, and complying with RBI’s eligibility criteria. Once approved, the RBI grants the authorization, specifying the scope and nature of foreign exchange-related activities that the Authorized Person can undertake.

Also Read: Roles And Functions Of Sub brokers

Role Of RBI 

Under FEMA, RBI plays a pivotal role in regulating and overseeing foreign exchange transactions. Its functions include issuing guidelines and regulations, granting authorization to authorised persons, managing foreign exchange reserves, monitoring capital flows, and ensuring compliance with foreign exchange regulations. RBI also acts as a central authority to maintain stability in the foreign exchange market and safeguard India’s external trade and payment mechanisms.

Conclusion

In summary, FEMA is India’s regulatory framework for foreign exchange transactions, and authorised persons, such as banks, help facilitate these transactions. The RBI supervises and authorizes these entities, ensuring compliance. This system fosters efficient foreign exchange management, promoting stability and serving the needs of businesses and individuals.