How to Start a FULL FLEDGED MONEY CHANGER LICENSE

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Overview of FFMC License

An FFMC (Full-Fledged Money Changer) License grants authorization to entities to purchase foreign currency from both Indian residents and non-residents, and to sell foreign currency to international visitors for personal and business travel purposes.

In India, only authorised money changers can conduct money-changing activities, as per Section 10 of the Foreign Exchange Management Act (FEMA), 1999. To facilitate international travelers, certain businesses and hotels are also allowed to engage in the exchange of international currency notes, coins, and traveler’s cheques, under the guidelines issued by the Reserve Bank of India (RBI).

To operate as an authorised money changer in India, obtaining an FFMC License from the RBI is mandatory. Any individual or organisation found conducting money-changing services without a valid license may face legal penalties. The RBI issues an annual master circular, known as the Memorandum of Instruction (MoI), outlining the operational rules for FFMCs. All entities engaging in or planning to engage in money-changing activities must adhere to these rules and comply with the regulations specified in the FEMA Act, 1999.

 

Different Types of FFMC Licenses

There are three types of entities that hold FFMC licenses:

  1. Authorized Dealer Category-I Banks (AD Category–I Banks)
  2. Authorized Dealers Category-II Banks (AD Category–II Banks)
  3. Full-Fledged Money Changers (FFMCs)

The existence of these three categories serves the following purposes:

  • To provide easier access to foreign exchange services for international visitors.
  • To enable residents to avail more foreign exchange services.
  • To ensure clients receive high-quality services.
  • To cater to the increasing competition in the market.

To operate as an FFMC in India, businesses must obtain an FFMC License from the Reserve Bank of India (RBI). Any entity found engaging in foreign exchange activities without the required license will face legal consequences.

Regulatory Framework for FFMC License in India

The Reserve Bank of India (RBI) serves as the regulatory authority for FFMCs in India and has issued the following directives to govern the operation and issuance of FFMC licenses:

  • Issuance of new FFMC licenses
  • Renewal of existing FFMC licenses
  • Issuance of branch licenses
  • Approval for the employment of agents or franchisees
  • Guidelines for Authorised Persons (AP)
  • Compliance with Know Your Customer (KYC), Anti-Money Laundering (AML), and Combating the Financing of Terrorism (CFT) regulations

Conditions for Applying for FFMC License in India

  • The organization applying for a Full-Fledged Money Changer (FFMC) license must be registered under the Companies Act, 2013.
  • For a single branch application, the company must have a Net Owned Fund (NOF) of at least Rs. 25 lakhs. For multiple branches, the NOF requirement is Rs. 50 lakhs.
  • The money-changing activity should be clearly stated in the object clause of the company’s Memorandum of Association.
  • The company must not have any ongoing civil or criminal cases with the Department of Revenue Intelligence or the Department of Enforcement.
  • The company must commence operations under its FFMC license within six months of issuance and inform the RBI about its progress.
 
 
 
 

Documents Required for Applying for an FFMC License

To apply for an FFMC License, the following documents are required:

  1. Incorporation Certificate: A copy of the certificate of incorporation of the company.
  2. Memorandum of Association: A clause in the memorandum and articles of association that authorizes the operation of a money-changing business, or an appropriate amendment to include this.
  3. Audited Financial Statements: A copy of the most recent audited financial statements, along with a certification from the statutory auditors verifying the amount of net owned funds as of the application date.
  4. Profit & Loss Accounts: Copies of the company’s audited profit and loss accounts and balance sheets for the last three years.
  5. Banker’s Confidential Report: A sealed copy of a confidential report from the applicant's banker.
  6. Related Business Information: Details of related businesses, such as any Non-Banking Financial Companies (NBFCs) in operation.
  7. Board Resolution: A copy of the board’s resolution approving the decision to conduct money-changing activities.

Activities FFMCs Can Undertake

FFMCs are authorized to carry out the following money-changing activities:

  • Restricted Money Changing: Converting foreign currencies or traveler’s checks into Indian Rupees. FFMCs may also enter into franchise agreements for these activities.
  • Currency Exchange: FFMCs can buy foreign currency from both residents and non-residents in the form of notes, coins, and traveler’s checks.
  • Currency Sale for Specific Purposes: FFMCs can sell foreign exchange for:
    • Private visits
    • Business visits
    • Forex prepaid cards

Procedure for FFMC License Application from RBI

To obtain an FFMC license, the following procedure must be followed:

  1. Application Submission: A detailed application must be submitted to the relevant Regional Office of the RBI.
  2. License Issuance: The FFMC license will be issued within 2-3 months if the applicant meets all the RBI's requirements.
  3. Approval: The RBI’s decision on the approval is final.
  4. Eligibility: The company or its directors must not be under investigation or have any legal proceedings pending against them for the license application to be considered eligible.

Post-Approval Requirements for FFMC License

Once an FFMC license is granted, the following post-approval requirements must be adhered to:

  • Registration Proof: A copy of the Shops & Establishment Act Registration Certificate or a rent receipt/lease agreement must be submitted to the RBI.
  • License Display: FFMCs must display a copy of their RBI-issued money-changing license at all business locations.
  • Audit System: FFMCs must establish a system for conducting concurrent audits of all transactions.
  • Annual Reports: FFMCs must submit their annual audited balance sheet to the relevant RBI Regional Office.

Records and Registers to Be Maintained by FFMCs

FFMCs must maintain the following registers for money-changing transactions:

  1. Daily Summary and Balance Book for travelers' cheques (Form FLM 2) and foreign currency notes/coins (Form FLM 1).
  2. Form FLM 3 to record public purchases of foreign or overseas currencies.
  3. Form FLM 4 for purchases of foreign currency from licensed dealers and money changers.
  4. Form FLM 5 for public sales of foreign currency and traveler’s checks.
  5. Form FLM 6 for sales of foreign currency to authorized dealers, FFMCs, and foreign banks.
  6. Form FLM 7 for recording traveler’s checks submitted to authorized dealers, money changers, or exporters.

FFMC License Cancellation

The RBI may revoke an FFMC license at any time if:

  • The revocation is in the public interest.
  • The FFMC violates any rules, regulations, or provisions of the Act.
  • The FFMC engages in any unlawful activity or fails to comply with statutory regulations.

Additionally, the RBI has the authority to revoke or modify the terms of an FFMC's license if necessary.

FFMC License Renewal

  • Application Submission: An FFMC license holder must submit a renewal application at least two months before the license expires, or within a time frame specified by the RBI.
  • RBI Decision: If the application is approved, the license remains valid until its expiration date. If declined, the license is not renewed, and the FFMC must cease operations.

Franchisees in Foreign Exchange

The RBI permits Agents and Franchisees to conduct foreign currency business on behalf of FFMCs. Key details for franchisees include:

  • Eligibility: Any organization with a place of business in India can become a franchisee, provided it has a minimum Net Owned Fund (NOF) of Rs. 10 lakhs.
  • Business Scope: Franchisees can only engage in certain restricted money-changing activities.
  • Franchise Agreement: The franchise agreement must be signed, and the franchisee must adhere to the terms specified by the FFMC.
  • Record Keeping: Franchisees are responsible for maintaining accurate transaction records and surrendering foreign cash to the franchiser within seven working days.

Role of Authorized Dealers in Foreign Exchange

Authorized Dealers (ADs), including certain financial institutions, play a crucial role in the foreign exchange market. The RBI authorizes AD Category-I Banks, AD Category-II Banks, and FFMCs to conduct specific foreign exchange operations and ensure compliance with regulatory standards.

Why CA Anytime for FFMC License?

An FFMC (Full-Fledged Money Changer) is authorized to buy foreign currency from foreign visitors and Indian citizens, as well as sell foreign currency for private and business travel purposes. To legally engage in money-changing activities, obtaining an FFMC License is mandatory. For assistance with obtaining this license, contact CA Anytime. We provide comprehensive services and guidance throughout the application process. Below are the services we offer:

  1. Documentation Assistance: We help clients compile and organize the required documents, ensuring everything is in order before submission.

  2. Application Preparation: We ensure accuracy in all the details and guide clients through the entire application process, including the completion of the necessary forms.

  3. Regulatory Compliance: We ensure that clients meet all the Reserve Bank of India (RBI) regulations required to obtain an FFMC license.

  4. Legal Consultation: We provide expert legal guidance, addressing any questions clients may have about the licensing laws.

By offering these services, CA Anytime helps clients navigate the complexities of the FFMC licensing process and enhances their chances of securing a license to operate as a Full-Fledged Money Changer.