Home   »   Banking Current Affairs 2023   »   RBI Unveils Forex Correspondent Scheme to...

RBI Unveils Forex Correspondent Scheme to Enhance Foreign Exchange Services

In a strategic move to enhance the accessibility of foreign exchange services, the Reserve Bank of India (RBI) is set to introduce a groundbreaking category of money changers known as Forex Correspondents (FxCs). This innovative approach is designed to streamline foreign exchange transactions and foster greater ease for users. The FxCs will operate under a principal-agency model, partnering with Category-I and Category-II Authorised Dealers (ADs) without the need for separate authorization from the RBI.

Forex Correspondent Scheme (FCS):

Under the proposed Forex Correspondent Scheme (FCS), the FxCs will engage in agency agreements with either AD Category-I or AD Category-II, establishing a collaborative framework to extend the reach of foreign exchange services. Notably, these entities will be exempt from the requirement of seeking individual authorization from the RBI, marking a departure from the existing regulatory process.

Rethinking Authorization Framework under FEMA

The RBI’s initiative stems from a comprehensive review of the existing authorization framework under the Foreign Exchange Management Act (FEMA). The primary objective is to streamline foreign exchange transactions for users while simultaneously reinforcing the regulatory oversight governing Authorised Persons (APs). Currently, APs encompass authorized dealers and Full-Fledged Money Changers (FFMCs).

Perpetual Authorization for AD Category-II Entities

In a bid to alleviate regulatory burdens and enhance the ease of doing business, the RBI proposes to renew the authorization of AD Category-II entities on a perpetual basis. This renewal is contingent upon meeting the revised eligibility criteria outlined in the new framework. Presently, entities seeking to operate as AD Category-II are initially granted authorization for one year, with subsequent renewals extending for a period ranging from 1 to 5 years.

Facilitating Trade-Related Transactions: A Potential Expansion

As part of the envisioned changes, the RBI is also contemplating empowering AD Category-II entities to facilitate trade-related transactions up to a value of ₹15 lakh per transaction. This expansion is intended to diversify business scope, foster innovation, encourage healthy competition, and ultimately enhance the overall consumer experience. The move reflects a commitment to adapt and evolve regulatory frameworks in response to the dynamic landscape of foreign exchange services.

Questions Related to Exams

Q1: What is the RBI’s new initiative regarding money changers?

A1: The RBI introduces Forex Correspondents (FxCs), a category streamlining foreign exchange through agency agreements with Authorised Dealers.

Q2: What is the key objective of the Forex Correspondent Scheme (FCS)?

A2: FCS aims to enhance accessibility to foreign exchange services, allowing FxCs to operate without seeking separate authorization from the RBI.

Q3: How does the RBI plan to renew authorization for AD Category-II entities?

A3: The RBI proposes perpetual authorization for AD Category-II entities, contingent on meeting revised eligibility criteria, reducing regulatory burdens.

Q4: What additional transaction value might AD Category-II entities handle under the proposed changes?

A4: AD Category-II entities may handle trade-related transactions up to ₹15 lakh per transaction, expanding business scope and encouraging innovation.

RBI Unveils Forex Correspondent Scheme to Enhance Foreign Exchange Services_4.1

RBI Unveils Forex Correspondent Scheme to Enhance Foreign Exchange Services_5.1