Authorised Dealer Bank

As per Section 2(c) of FEMA, 1999

 “authorized person” means an authorized dealer, money changer, off-shore banking unit or any other person for the time being authorized under sub-section (1) of section 10 to deal in foreign exchange or foreign securities;

Section 10

Authorized person.- (1) The Reserve Bank may, on an application made to it in this behalf, authorize any person to be known as authorized person to deal in foreign exchange or in foreign securities, as an authorized dealer, money changer or off-shore banking unit or in any other manner as it deems fit.

(2) An authorization under this section shall be in writing and shall be subject to the conditions laid down therein.

(3) An authorization granted under sub-section (1) may be revoked by the Reserve Bank at any time if the Reserve Bank is satisfied that-

(a) it is in the public interest so to do; or

(b) the authorized person has failed to comply with the condition subject to which the authorization was granted or has contravened any of the provisions of the Act or any rule, regulation, notification, direction or order made thereunder: Provided that no such authorization shall be revoked on any ground referred to in clause (b) unless the authorized person has been given a reasonable opportunity of making a representation in the matter

(4) An authorized person shall, in all his dealings in foreign exchange or foreign security, comply with such general or special directions or orders as the Reserve Bank may, from time to time, think fit to give, and, except with the previous permission f the Reserve Bank, an authorized person shall not engage in any transaction involving any foreign exchange or foreign security which is not in conformity with the terms of his authorization under this section.

(5) An authorized person shall, before undertaking any transaction in foreign exchange on behalf of any person, require that person to make such declaration and to give such information as will reasonably satisfy him that the transaction will not involve and is not designed for the purpose of any contravention or evasion of the provisions of this Act or of any rule, regulation, notification, direction or order made there under, and where the said person refuses to comply with any such requirement or make only unsatisfactory compliance therewith, the authorized person shall refuse in writing to undertake the transaction and shall, if he has reason to believe that any such contravention or evasion as aforesaid is contemplated by the person, report the matter to the Reserve Bank.

(6) Any person, other than an authorized person, who has acquired or purchased foreign exchange for any purpose mentioned in the declaration made by him to the authorized person under sub-section (5) does not use it for such purpose or does not surrender it to authorized person within the specified period or uses the foreign exchange so acquired or purchased for any other purpose for which purchase or acquisition or foreign exchange is not permissible under the provisions of the Act or the rules or regulations or direction or order made there under shall be deemed to have committed a contravention of the provisions of the Act for the purpose of this section.

Under s 2(c) of FEMA, 1999, ‘authorised person’ means:

an authorized dealer, money changer, off-shore banking unit or any other person for the time being authorized under sub-section (1) of section 10 to deal in foreign exchange or foreign securities.

The definition of authorised person means any person who may be appointed by the RBI to be known as authorised person to deal in foreign exchange or in foreign securities, as an authorised dealer, money changer or off-shore banking unit or in any other manner as it deems fit. An authorized person is not given free hand to deal in foreign exchange; it has to furnish documents to the RBI from time to time as may be required. Such authorisation is required to be made in writing.

What an entity can do as the Authorised person will depend on the license granted to it by the RBI.

The Reserve Bank of India may grant the authorization subject to such conditions as may be stipulated in the authorization.

Section 10 empowers the RBI to appoint authorise person to deal in foreign exchange or in foreign securities.  The RBI may specify the conditions in the authorisation and may also revoke the same in public interest in case any contravention of the provision of the Act.

In terms of s 10(1) of the Foreign Exchange Management Act, 1999, the RBI, on an application, may authorise any person to be known as an authorised person, to deal in foreign exchange as an authorised dealer, money changer or off-shore banking unit or in any other manner as it deems fit.

The RBI cannot do all transactions in foreign exchange by itself. Therefore, the powers are delegated to authorised persons with suitable guidelines, to deal in foreign exchange and foreign securities. ‘Authorized Person’ under FEMA, is a person who is authorised by the RBI to deal in Foreign Exchange.

Definition of authorised person as per s 2(c) is “Authorised Persons means an Authorised Dealer, Money Changer , Offshore Banking Unit or any other person authorised u/s 10 (1) to deal in Foreign Exchange or Foreign Securities.”

For being registered as an ‘Authorized Person’, necessary application along with relevant documents has to be furnished to the RBI.

In ‘Authorized Person’ is regulated by the RBI and has to furnish details and information to the RBI from time to time as may be required by it.

The RBI may, for the purpose of ensuring the compliance with the provisions of FEMA, 1999 or of any rule, regulation, notification, direction or order made there under, direct any authorised person to furnish such information, in such manner, as it deems fit. The RBI may, at any time, cause an inspection to be made, by any officer of the RBI specially authorised in writing by the RBI in this behalf, of the business of any authorised person as may appear to it to be necessary.

All foreign exchange dealing shall be done through only Authorised Person (Section 3 of FEMA 1999).

Authorised Persons can be broadly categorised in the following categories:

1. Authorized Dealers:
2. A) Category I
3. B) Category II
4. C) Category III
5. Full Fledged Money Changers (FFMC)
6. Off shore Banking Units (OBU)

Authorised Dealers:

1. Category-I of the list contains all major Banks in India who are providing all Current Account and Capital account Transactions.
2. Category-II of the list contains upgraded FFMCs, State Co-Operative Banks, urban Co-Operative Banks, RRBs and others who are authorised to deal in non-trade Current Account Transactions.
3. Category-III of the list contains selected financial and other Institutions, who are authorised to deal with specific transactions incidental to their Foreign Exchange Activities.

Full Fledged Money Changers (FFMCs):

These are the institutes who facilitate purchase and sale of Foreign Exchange for private or business visit. Detailed guidelines relating to their activities are given in the RBI Master Circular on Money Changing Activities.

Off shore Banking Units (OBU):

These are the banking units, usually established in a specialised area like SEZ where the transactions are entertained in foreign currency only.

In terms of s 10(2), authorisation given to authorised person by the RBI shall be in writing. The RBI may revoke the authorisation granted to authorised person in terms of s 10(3) in case of below-mentioned conditions:

a)    Revocation is in public interest; or

b)   The authorized person has failed to comply with the condition subject to which the authorisation was granted or has contravened the provision of the Act (after giving reasonable opportunity of being heard)

Sub-section (4) covers dealing in foreign exchange or foreign security. It does not deal with any other assets. The second part of sub-section prohibits an authorised person from engaging in any transaction involving any foreign exchange or foreign security which is not in conformity with the terms of his authorisation under this section.

Section 10(5) is a very important section which places the duty of compliance of law on the who has undertaken the transaction in foreign Exchange.

Requirement of Undertaking :  The section places the responsibility of the authorized person that it shall, before undertaking any transaction in foreign exchange on behalf of any person, require that person to make such declaration and to give such information as will reasonably satisfy him that the transaction will not involve and is not designed for the purpose of any contravention or evasion of the provisions of this Act or of any rule, regulation, notification, direction or order made there under. In most of the transaction related forms (Like Form ODI, Form FC GPR, Form ECB, Form A2) the undertaking is inbuilt in the forms only. However, for the transactions for which the undertaking are not given in the regulations each Authorised person need to frame their own format undertaking to be taken from the person.

 Refusal to undertake the transaction:  Where the said person refuses to comply with any such requirement or make only unsatisfactory compliance therewith, the authorized person shall refuse in writing to undertake the transaction.

 Intimation to RBI: If the authorized person has reason to believe that any such contravention or evasion as aforesaid is contemplated by the person, the authorized person shall report the matter to the Reserve Bank. Unlike the Prevention of money laundering Act, 2002 where it is made obligatory on the authorized person to file various returns like STR, CTR etc There are no specified formats in which contraventions under FEMA are required to be reported by the authorized person.

11. Reserve Bank’s powers to issue directions to authorised person.-

 (1) The reserve Bank may, for the purpose of securing compliance with the provisions of this Act and of any rules, regulations, notifications or directions made there under, give to the authorised persons any direction in regard to making of payment or the doing or desist from doing any act relating to foreign exchange or foreign security.

(2) The Reserve Bank may, for the purpose of ensuring the compliance with the provisions of this Act or of any rule, regulation, notification, direction or order made there under, direct any authorised person to furnish such information, in such manner, as it deems fit.

(3) Where any authorised person contravenes any direction given by the Reserve Bank under this Act or fails to file any return as directed by the Reserve Bank, the Reserve Bank may, after giving reasonable opportunity of being heard, impose on the authorized person a penalty which may extend to ten thousand rupees and in the case of continuing contravention with an additional penalty which may extend to two thousand rupees for every day during which such contravention continues.

Section 11 allows the RBI to issue directions to the authorised person and impose penalty if the direction given by RBI is contravened. The section empowers the RBI to give directions for the purpose of securing compliance with the provisions. The RBI is authorised to direct any authorised person to furnish information for the purpose of any rule, regulation, notification, direction or order made thereunder.

The section states that when authorised person fails to comply with any direction issued by the RBI, after giving a reasonable opportunity of being heard, the RBI may impose on the authorised person a penalty which may extend to Rs 10,000 and in the case of continuing contravention with an additional penalty which may extend to Rs 2,000 for every day during which such contravention continues.

12. Power of Reserve Bank to inspect authorised person.-

(1) The Reserve Bank may, at any time, cause an inspection to be made, by any officer of the Reserve Bank specially authorised in writing by the Reserve Bank in this behalf, of the business of any a authorised person as may appear to it to be necessary or expedient for the purpose of-

(a) verifying the correctness of any statement, information or particulars furnished to the Reserve Bank;

(b) obtaining any information or particulars which such authorised person has failed to furnish on being called upon to do so; (c) securing compliance with the provisions of this Act or of any rules, regulations, directions or orders made there under.

 (2) It shall be the duty of every authorised person, and where such person is a company or a firm, every director, partner or other officer of such company or firm, as the case may be, to produce to any officer making an inspection under sub-section (1), such books, accounts and other documents in his custody or power and to furnish any statement or information relating to the affairs of such person, company or firm as the said officer may require within such time and in such manner as the said officer may direct.

Section 12 empowers the RBI to inspect the authorised person. The authorised person shall have to produce books, accounts, and other documents, etc. as may be required by the inspecting officer. The inspection may be made by any officer of the RBI authorised in writing by the RBI. The inspection may be conducted only in respect of the business of the authorised person. The inspection may be made only for the following purposes:

•  verifying the correctness of any statement, information or particulars furnished to the RBI;
• obtaining any information or particulars which such authorised person has failed to furnish on being called upon to do so;
• securing compliance with the provisions of this Act or of any rules, regulations, directions or orders made thereunder.
• The section provides that the authorised person and where such person is a company or a firm, every director, partner or another officer of such company or firm are under the following obligation:

to produce for inspection of books, accounts and other documents in his custody or power and

–      to furnish any statement or information relating to the affairs of such person, company or firm as the said officer may require within such time and in such manner as the said officer my direct.

Authorised Dealer (AD) banks get the data in A2 form from various stake holders like corporates, Individuals etc. which in turn is reported in FETERS return.

Nodal offices of Authorised Dealer (AD) banks are required to report purpose, country, currency and other details of their foreign exchange sale and purchase transactions in Foreign Exchange Transaction Electronic Reporting System (FETERS) to the Reserve Bank on a fortnightly basis in the prescribed format since October 1997. These are primarily required for compilation of India’s Balance of Payments (BoP) statistics as per international guidelines given by the International Monetary Fund (IMF), and other policy making by the Reserve Bank and are also used for other macroeconomic management purposes. With the signing of General Agreement on Trade in Services (GATS) under World Trade Organisation (WTO), the member countries are required to disseminate the data on international trade in services as per Manual on Statistics on International Trade in Services (MSITS). Accordingly, detailed BoP statistics is released on a quarterly basis and BoP for services is released on a monthly basis.