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Scheme for Authorized Dealers Category I (AD) banks, Authorized Dealers Category-II and Full Fledged Money Changers Appointing Agents/Franchisees for Undertaking Restricted Money Changing

(Updated as on July 4, 2012)

1. What are the Money Changing facilities presently available in India?

At present, the conversion of currency notes, coins or travellers' cheques designated in foreign currency into Indian Rupees and vice versa is possible through AD Category-I banks, ADs Category-II and Full Fledged Money Changers (FFMCs). Further, AD Category –I banks, ADs Category – II and FFMCs may appoint franchisees (also known as Agents) to undertake purchase of foreign currency. However, Franchisees of AD Category –I banks, ADs Category – II and FFMCs functioning within 10 kms from the borders of Pakistan and Bangladesh may also sell the currency of the bordering country, with the prior approval of the Regional offices concerned of the Reserve Bank. Other franchisees of AD Category –I banks, ADs Category – II and FFMCs can only purchase foreign currency.

2. What is the objective of the Scheme for appointing Franchisees by AD Category-I Banks, ADs Category-II and FFMCs for undertaking Restricted Money Changing Activities?

The objective of the Scheme is to provide easier foreign exchange conversion facilities for travellers and tourists, including Non Resident Indians (NRIs), by enlarging the network of money changing facilities in the country. It is expected that the facility of  Franchisee arrangement will enable AD Category-I banks, ADs Category-II  and FFMCs to provide such facilities at all tourist centers and major cities during extended hours and on holidays.

3. What are the salient features of Franchisee Agreement?

Under the Scheme, the Reserve Bank permits AD Category – I banks, ADs Category – II and FFMCs to enter into franchisee agreements at their option for the purpose of carrying on Restricted Money Changing business, i.e. conversion of foreign currency notes, coins or travelers' cheques into Rupees by the franchisees.

A franchisee can be any entity which has a place of business and a minimum Net Owned Funds of Rs. 10 lakhs. Franchisees can undertake only restricted money changing business.

AD Category – I banks, ADs Category – II and  FFMCs as the Franchisers are free to decide on the tenor of the arrangement as also the commission or fee through mutual agreement with the franchisee. The Franchisee agreement to be entered into should include the following conditions:

(a) The franchisees should display the names of their franchisers, exchange rates and that they are authorized only to purchase foreign currency prominently in their offices. Exchange Rate for conversion of foreign currency into Rupees should be the same or close to the daily exchange rate charged by the AD Category – I Bank / AD Category - II / FFMC at its branches.

(b) The foreign currency purchased by the franchisee should be surrendered only to its franchiser within 7 working days from the date of purchase.

(c) The franchisee should maintain proper records of transactions.

(d) The on-site inspection of the franchisee by the franchiser should be conducted at least once a year.

4. What is the procedure for submission of application by AD Category – I bank/ AD Category - II/ FFMC to the Reserve Bank for appointment of franchisees?

An AD Category – I bank/ AD Category - II/ FFMC should apply to the respective Regional Office of the Reserve Bank, in Form RMC-F (Annex-IV of the A.P. (DIR Series) Circular No. 57 [A.P. (FL/RL Series) Circular No. 04] dated March 9, 2009) for appointment of franchisees under this Scheme. The application should be accompanied by a declaration that while selecting the franchisees, adequate due diligence has been carried out and that such entities have undertaken to comply with all the provisions of the franchising agreement and prevailing Reserve Bank regulations regarding money changing. Approval would be granted by the Reserve Bank for the first franchisee arrangement. Thereafter, as and when new franchisee agreements are entered into, these would have to be reported to the Reserve Bank in Form RMC-F (Annex-IV of the A.P. (DIR Series) Circular No. 57 [A.P. (FL/RL Series) Circular No. 04] dated March 9, 2009) on a post-facto basis, along with similar declaration as indicated above.

5. What are the checks to be ensured by AD Category-I banks/ADs Category-II/FFMCs while conducting due diligence of Franchisees before appointing them?

The AD Category – I banks / ADs Category – II / FFMCs should undertake the following minimum checks while conducting the due diligence of the franchisees:

• existing business activities of the franchisee and its position in the area.

• minimum Net Owned Funds of the franchisee.

• Shop & Establishment / other applicable municipal certification in favour of the franchisee.

• verification of physical existence of location of the franchisee, where restricted money changing activities will be conducted.

• conduct certificate of the franchisee from the local police authorities (certified copy of Memorandum and Articles of Association and Certificate of Incorporation in lieu of conduct certificate in respect of franchisees which are incorporated entities. Accordingly, Item No. 6 of the Form RMC-F in Annex-IV of the A.P. (DIR Series) Circular No. 57 [A.P. (FL/RL Series) Circular No. 04] dated March 9, 2009 may suitably be modified for corporate franchisees.) [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 enforcing agencies.]

• declaration regarding past criminal cases, if any, and cases initiated / pending against the franchisee or its directors / partners by any law enforcing agency, if any.

• PAN Card of the franchisee and its directors / partners.

• photographs of the directors / partners and the key persons of franchisee.

The above checks should be done on a regular basis, at least once in a year. The AD Category – I banks / ADs Category – II / FFMCs should obtain from the franchisees proper documentary evidence confirming the location of the franchisees in addition to personal visits to the site. The AD Category – I Banks/ ADs Category – II / FFMCs should also obtain a Chartered Accountant's certificate confirming the maintenance of the Net Owned Funds of the franchisees, i.e. Rs. 10 lakh on an ongoing basis.

6. What are the criteria for selection of centers?

(i) The AD Category – I banks / AD Category – II / FFMCsmay appoint franchisees within a distance of 100 kms. from their controlling branches concerned.

(ii) However, this distance criterion is exempted in case of a recognised  group/ chain of hotels appointed as franchisees, provided the headquarters of the group/ chain of hotels falls within a distance of 100 kms. of the controlling branch of the AD Category – I banks / ADs Category – II / FFMCs(franchiser) concerned.

(iii) Further, in case of areas declared as hilly areas (as defined by the respective State Governments/Union Territories) and the North-Eastern States, the distance restriction given in point (i) above is not applicable.

Note: The above criteria is applicable to new franchisees with immediate effect and to the existing franchisees latest by December 31, 2011.

7. What are the guidelines on provision for training of franchisees?

Franchisers are expected to impart training to the franchisees as regards operations and maintenance of records.

8. What are the guidelines in respect of Reporting, Audit and Inspection of franchisees?

The franchisers i.e. the AD Category – I banks / ADs Category – II / FFMCs are expected to ensure that franchisees put in place adequate arrangements for reporting of transactions by the franchisees to the franchisers on a regular basis (at least monthly). Regular spot audits of all locations of franchisees, at least once in six months, should be conducted by AD Category – I Banks / ADs Category – II / FFMCs. Such audits should involve a dedicated team and 'mystery customer' (Individuals acting as potential customers to experience and measure the extent up to which people and processes perform as they should) concept should 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. 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.

9. Does a franchisee need to adhere to KYC/AML/CFT Guidelines?

Franchisees are required to strictly adhere to the KYC/AML/CFT guidelines, as applicable to ADs Category – I / ADs Category – II / FFMCs.

Note:- No licence for appointment of franchisees will be issued to any FFMC / non-bank AD Category - II, against whom any major Directorate of Enforcement (DoE) / Directorate of Revenue Intelligence (DRI) / Central Bureau of Investigation (CBI) / Police case is pending. In case where any FFMC / non-bank AD Category - II has received one-time approval for appointing franchisees and subsequent to the date of approval, any DoE / DRI / CBI / Police case is filed, the FFMC / non-bank AD Category - II should not appoint any further franchisees and bring the matter to the notice of the Reserve Bank immediately. A decision will be taken by the Reserve Bank regarding allowing the FFMC / non-bank AD Category – II to appoint  franchisees.
 
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