Regulatory Framework of FFMC License in India

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Regulatory Framework of FFMC License in India

The FFMC stands for Full Fledged Money Changer. It is a license that is regulated by Section 10(1) of the Foreign Exchange Management Act and the Reserve Bank of India (RBI). This license is required by any person or firm from the RBI as permission to conduct forex exchange activities in India. Without permission, no business or person can engage with such business, as it will be deemed an offence. 

However, the entities are approved by RBI to conduct forex exchange which is known as FFMC. The object of FFMC is to expand the access of foreign exchange facilities to residents and tourists. This is during the efficient customer service through competition. 

Revoke of FFMC License by RBI

If the RBI has granted an authorisation under Section 10(1) of FEMA 1999. It can revoke the authorisation in the following cases:

• It is in the public interest, or
• If the person who has authorization has not followed the conditions that were imposed or have violated any of the provisions of the Act. Also, any rules, regulations, notifications, directions, or orders that were made according to it.

How Many Authorised Persons Does FFMC Have?

The franchisers including Authorised Dealers Category-I Banks, ADs Category-II, and FFMCs are required to set an arrangement for the regular reporting of transactions by their franchisees. This reporting must be done at least once a month.

However, the franchisers must conduct spot audits of all franchisee locations every six months. This is by using a team that also carries out incognito visits to assess compliance levels. 

In addition to this, an annual inspection of franchisee books must be implemented to check whether the money-changing business is following the terms of the agreement or not. The regulations are set by the Reserve Bank guidelines and appropriate records are being maintained.

• Select banks as AD Category-I, to conduct all permissible current and capital account transactions as directed from time to time. 
• Select entities, authorised as AD Category-II, to conduct specified non-trade related current account transactions. All activities permitted to FFMCs, and any other activity that the RBI has chosen. 
• Choose financial and other institutions, authorised as AD Category-III, to conduct specific foreign exchange transactions incidental to their business/activities. 
• Select registered companies such as FFMC to undertake the purchase and sale of foreign exchange for specific purposes such as private and business travel abroad.

Regulatory Framework of FFMC License

The FFMC business owners must check the regulatory framework for the FFMC license. The entities must check the important points to attract business. So, below are the multiple compliances with which the FFMC have to comply:

Minimum Net Owned Funds (NOF)

The applicant has to be a company registered under the Companies Act, 1956/ Companies Act 2013 or Registration of Companies (Sikkim) Act, 1961. So, the minimum Net Owned Funds (NOF) required for consideration as FFMC are as follows:

• Single branch FFMC required Rs. 25 lakh.
• Multiple branch FFMC required Rs. 50 lakh.

Due Diligence of Franchisees

A franchiser, i.e. AD Category–I Bank/ AD Category–II / FFMC should undertake the following minimum checks while conducting due diligence on its franchisees:

1. Existing business activities of the franchisee/ its position in the area.
2. Minimum Net Owned Funds of the franchisee.
3. Shops & Establishments / other applicable municipal certification in favour of the franchisee.
4. Verification of the physical existence of the location of the franchisee, where restricted money-changing activities will be conducted.
5. Declaration regarding past criminal cases, if any, cases initiated/pending against the franchisee or its directors/partners by any law-enforcing agency, if any.
6. PAN Card of the franchisee and its directors/partners.
7. Photographs of the directors/partners and the key persons of the franchisee.
8. Conduct certificate of the franchisee from the local police authorities (certified copy of Memorandum and Articles of Association and Certificate of Incorporation in respect of incorporated entities).

Note: Obtaining of Conduct Certificate of the franchisee from the local police authorities is optional for the franchisers. However, the franchisers may take due care to avoid appointing individuals/ entities as franchisees who have cases/proceedings initiated/pending against them by any law enforcement agencies.

All the points must be followed regularly, or at least once a year. The franchiser must obtain from the franchisees proper FFMC documents to check the location of the franchisees or visit the site personally. However, the franchiser should also obtain a Chartered Accountant's certificate confirming the maintenance of minimum Net Owned Funds of the franchisee, i.e., Rs.10 lakh on an ongoing basis.

Reporting, Audit and Inspection

The franchisers, i.e. ADs Category–I Banks / ADs Category–II / FFMCs are expected to put in place adequate arrangements for reporting transactions by the franchisees to the franchisers regularly (at least monthly). Regular spot audits of all locations of franchisees, at least once in six months, should be conducted by the franchiser. 

Such audits should involve a dedicated team and incognito visits should also be used to test the compliance level of the franchisees. A system of annual inspection of the books of the franchisees should also be put in place. So, the purpose of such inspection is to ensure that the money-changing business is being carried out by the franchisees in conformity with the terms of the agreement and prevailing Reserve Bank guidelines and that necessary records are being maintained by the franchisees.

Renewal Guidelines of Exisiting FFMCs

The applicant should be a company registered under the Companies Act, 1956/ Companies Act, 2013/ Registration of Companies (Sikkim) Act, 1961 having a registered office within the area of jurisdiction of the respective Regional Office of the Foreign Exchange Department. However, the Net Owned Funds required are as follows:

However, renewal applications should be submitted along with the documents mentioned below.

• Copy of the latest audited accounts with a certificate from the Statutory Auditors regarding the position of Net Owned Funds as of date.
• Confidential Report from the applicant's banker in a sealed cover.
• A declaration to the effect that no proceedings have been initiated by/ are pending with the Directorate of Enforcement / Directorate of Revenue Intelligence or any other law enforcing authorities against the applicant company. Or, its directors and that no criminal cases are initiated/ pending against the applicant company or its directors.
• A copy of the KYC / AML / CFT policy framework existing in the company.

Conclusion

The FFMC is a way to conduct foreign exchange activities and other services in India. However, it must be checked that the activities cannot be conducted without availing the license from the Reserve Bank of India. So, if you want to obtain the FFMC license from RBI, then reach out to Registrationwala. We help you from the application process to finally obtaining the license.

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