Don’t make Forex Transactions with ETPs not Authorised under FEMA: RBI

RBI has cautioned the general public/ residents to not to make forex transactions with Unauthorized Electronic Trading Platforms (ETPs) offering forex trading/ investments schemes with exorbitant returns, to avoid any frauds/ loss of money.

It may be noted that entering into unauthorized forex transactions with unauthorized persons/ ETPs, i.e. other than those permitted under the FEMA, shall render themselves liable for penal action for violation of FEMA regulations.

RBI Press Release dt. 03/02/2022: RBI Cautions against unauthorised forex trading platforms

The Reserve Bank of India (RBI) has noticed misleading advertisements of unauthorized Electronic Trading Platforms (ETPs) offering forex trading facilities to Indian residents, including on social media platforms, search engines, Over The Top (OTT) platforms, gaming apps and the like.

There have also been reports of such ETPs engaging agents who personally contact gullible people to undertake forex trading/ investment schemes and entice them with promises of disproportionate/ exorbitant returns. Further, there have been reports of frauds committed by such unauthorized ETPs/ portals and many residents losing money through such trading/ schemes.

It is clarified that resident persons can undertake forex transactions only with authorised persons and for permitted purposes, in terms of the Foreign Exchange Management Act, 1999 (FEMA). While permitted forex transactions can be executed electronically, they should be undertaken only on ETPs authorised for the purpose by the RBI or on recognised stock exchanges (National Stock Exchange of India Ltd., BSE Ltd. and Metropolitan Stock Exchange of India Ltd.) as per the terms and conditions specified by the RBI from time to time. It is also clarified that remittances for margins to overseas exchanges/ overseas counterparties are not permitted under the Liberalised Remittance Scheme (LRS) framed under the FEMA.

A list of authorised persons and authorised ETPs is available on the RBI website. A set of frequently asked questions (FAQs) on forex transactions has also been placed on the website for the general guidance of the public.

The RBI cautions the public not to undertake forex transactions on unauthorized ETPs or remit/ deposit money for such unauthorized transactions. Resident persons undertaking forex transactions for purposes other than those permitted under the FEMA or on ETPs not authorised by the RBI shall render themselves liable for penal action under the FEMA.

RBI’s 13 FAQs on Foreign Exchange (Forex) Transactions

RBI has issued a set of 13 FAQs on Forex Transactions for guidance purposes. In case of any inconsistency between RBI’s FAQs on Forex Transactions and FEMA (i.e. Act/ Rules/ Regulations/ Directions/ Permissions issued thereunder, the later (FEMA) shall prevail:

Q1. Can a resident person undertake forex transaction?

Resident persons are permitted to undertake forex transactions only with authorised persons and for permitted purposes, in terms of the Foreign Exchange Management Act, 1999 (FEMA).

Resident persons undertaking forex transactions with unauthorised persons and for purposes other than those permitted under FEMA shall render themselves liable for penal action under the Act.

Q2. Who are authorised persons?

An authorised person is an entity authorised by the Reserve Bank of India to deal in forex. It can be an authorised dealer, money changer, off-shore banking unit or any other person for the time being authorised under Sub-Section (1) of Section 10 of FEMA. The list of authorised persons is available at RBI website here.

Q3. Can a resident person undertake forex transactions on internet/ electronic trading portals?

Permitted forex transactions executed electronically should be undertaken only on electronic trading platforms (ETPs) authorised for the purpose by the Reserve Bank of India (RBI) or on recognized stock exchanges (National Stock Exchange of India Ltd. (NSE), BSE Ltd. (BSE) and Metropolitan Stock Exchange of India Ltd. (MSE)) as per the terms and conditions specified by RBI from time to time. The list of authorised ETPs is available here. As per FEMA, resident persons are not permitted to undertake forex transactions on unauthorised ETPs.

Resident persons undertaking forex transactions on unauthorised ETPs shall render themselves liable for penal action under FEMA.

Q4. What is an Electronic Trading Platform (ETP)? Do they require authorisation from RBI to operate in India?

Electronic Trading Platform (ETP) means any electronic system, other than a recognised stock exchange, on which transactions in eligible instruments like securities, money market instruments, foreign exchange instruments, derivatives, etc. are contracted. No entity shall operate an ETP without obtaining prior authorisation of RBI under The Electronic Trading Platforms (Reserve Bank) Directions, 2018.

Resident persons operating ETPs without authorisation from RBI, collecting and effecting/ remitting payments directly/ indirectly outside India shall render themselves liable for penal action under the extant laws and regulations, including the Foreign Exchange Management Act, 1999 and the Prevention of Money Laundering Act, 2002.

Q5. Can a resident individual remit margin overseas under Liberalised Remittance Scheme (LRS) for undertaking online forex trading?

No. Remittances under LRS can be made only for permissible current and capital account transactions. All other transactions which are otherwise not permissible under FEMA and those in the nature of remittance for margins or margin calls to overseas exchanges/ overseas counterparty are not allowed under the Scheme.

Q6. Where can a resident person register complaints against unauthorised electronic trading platforms (ETPs) for forex transactions?

Complaints regarding unauthorised ETPs for forex transaction may be filed on the National Cyber Crime Reporting Portal (https://cybercrime.gov.in). This portal is an initiative of Government of India to facilitate victims/ complainants to report all types of cybercrime complaints online. Complaints reported to the portal are dealt by respective police authorities of States/ UTs based on the information provided by the complainants. Complaints may also be filed with Enforcement Directorate ([email protected]) and respective police authorities of States/ UTs.

Q7. What are the permitted purposes for undertaking forex cash, tom and spot transactions?

Forex cash, tom and spot transactions can be undertaken for the purpose of buying/ selling foreign exchange for permitted current/capital account transactions.

Q8. What is the meaning of capital account transaction? What are the permitted capital account transactions?

“Capital account transaction” means a transaction which alters the assets or liabilities, including contingent liabilities, outside India of persons resident in India or assets or liabilities in India of persons resident outside India. Please refer to the Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000 for permitted capital account transactions.

Q9. What is the meaning of current account transaction? What are the permitted current account transactions?

“Current account transaction” means a transaction other than a capital account transaction. For example:

i) Payments due in connection with foreign trade, other current business, services, and short-term banking and credit facilities in the ordinary course of business;

ii) Payments due as interest on loans and as net income from investments, remittances for living expenses of parents, spouse and children residing abroad; and

iii) Expenses in connection with foreign travel, education and medical care of parents, spouse and children.

Please refer to the Foreign Exchange Management (Current Account Transactions) Rules, 2000 for permitted current account transactions.

Q10. What are the permitted purposes for undertaking forex derivative transactions (over the counter (OTC) and exchange traded)?

Permitted purpose depends on the currency pair viz. Foreign Currency – Indian Rupee (FCY-INR) and Foreign Currency – Foreign Currency (FCY-FCY):

i) Permitted purpose for undertaking FCY-INR forex derivative transactions (e.g., USD-INR forwards, futures, options, etc.): Hedging exchange rate risk.

ii) Permitted purpose for undertaking FCY-FCY forex derivative transactions (e.g., EUR-USD forwards, futures, options, etc.): No restrictions in terms of purpose.

Q11. What are the permitted forex derivative products?

OTC derivatives

i) For retail users:

  1. Foreign Exchange Forward
  2. Foreign Exchange Swap
  3. Currency Swap
  4. Purchase of Call and Put Options
  5. Purchase of Call and Put Spreads

ii) For non-retail users: Any foreign exchange derivative contract, including covered options, which the Authorised Dealer can price and value independently and is approved by the board of the Authorised Dealer, provided that the potential loss from the derivative transaction to the user, in any scenario, does not exceed the loss that the user would face if he had left the position unhedged.

Exchange traded derivatives

i) Foreign Exchange Future

ii) Foreign Exchange Option

Q12. Who are retail and non-retail users?

Regulated financial entities, other entities with a minimum net worth of Rs. 500 crore and non-residents (other than individuals) are classified as non-retail users. All other types of user are classified as retail users.

Q13. What is the difference between over the counter (OTC) and exchange traded forex derivatives?

Forex derivatives traded on exchanges are referred to as exchange traded forex derivatives. All other forex derivatives, including those traded on ETPs, are called OTC forex derivatives.

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