FOREIGN EXCHANGE DEPARTMENT Master Circular On Memorandum Of Instructions Governing Money Changing Activities

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RBI/2013-14/10

Master Circular No. 10/2013-14 July 01, 2013

To,

All Authorised Persons in Foreign Exchange

Madam / Sir,

Master Circular on Memorandum of Instructions

governing money changing activities

This Master Circular consolidates the existing instructions on the subject of

“Memorandum of Instructions governing money changing activities” at one place.

The list of underlying circulars/ notifications is set out in Appendix.

2. This Master Circular is being issued with a sunset clause. It will stand withdrawn

on July 1, 2014 and would be replaced by an updated Master Circular on the

subject.

Yours faithfully,

(Rudra Narayan Kar)

Chief General Manager-in-Charge

INDEX

SECTION-I..............................................................................................................................2

Guidelines for Licencing and other Approvals for Authorised Money Changers (AMCs)....2

SECTION II .............................................................................................................................7

Guidelines for Grant of Authorisation for Additional Branches :-.........................................7

SECTION III ..........................................................................................................................10

Guidelines for appointment of Agents / Franchisees by Authorized Dealer Category – I

Banks, Authorized Dealers Category - II and FFMCs :-....................................................10

SECTION IV..........................................................................................................................15

Guidelines for Renewal of licences of existing FFMCs :...................................................15

SECTION V...........................................................................................................................16

Operational Instructions ....................................................................................................16

SECTION VI..........................................................................................................................27

KYC/ AML/ CFT Guidelines ..............................................................................................27

SECTION VII.........................................................................................................................28

Revocation of Licence....................................................................................................28

SECTION VIII........................................................................................................................29

‘Fit and proper’ criteria for directors of FFMCs / non-bank ADs Category - II ...................29

Annex-I..................................................................................................................................32

KYC / AML / CFT Guidelines for money changing activities .............................................32

Annex-II.................................................................................................................................61

Application Form for FFMC licence under section 10(1) of FEMA, 1999..........................61

Annex-III................................................................................................................................63

Form RMC-F .....................................................................................................................63

Annex-IV ...............................................................................................................................64

FLM 1................................................................................................................................64

Annex-V ................................................................................................................................65

FLM 2................................................................................................................................65

Annex-VI ...............................................................................................................................66

FLM 3................................................................................................................................66

Annex-VII ..............................................................................................................................67

FLM 4................................................................................................................................67

Annex-VIII .............................................................................................................................68

FLM 5................................................................................................................................68

Annex-IX ...............................................................................................................................69

FLM 6................................................................................................................................69

Annex-X ................................................................................................................................70

FLM 7................................................................................................................................70

Annex- XI ..............................................................................................................................71

FLM 8................................................................................................................................71

Annex- XII .............................................................................................................................75

Statement of Purchase transactions of USD 10,000 and above.......................................75

Annex- XIII ............................................................................................................................76

Statement showing summation of Foreign Currency Account opened in India out of export

proceeds of Foreign Currency Notes/ encashed Travellers' Cheques..............................76

Annex- XIV............................................................................................................................77

Statement of the amount of foreign currency written off during the financial year ............77

Appendix ...............................................................................................................................78

SECTION-I

Guidelines for Licencing and other Approvals for Authorised Money Changers

(AMCs)

1. Introduction

Authorised Money Changers (AMCs) are entities, authorised by the Reserve Bank

under Section 10 of the Foreign Exchange Management Act, 1999. An AMC is a Full

Fledged Money Changer (FFMC). In addition to Authorised Dealer Category -I

Banks (AD Category–I Banks) and Authorised Dealers Category - II (ADs Category–

II), Full Fledged Money Changers (FFMCs) are authorised by the Reserve Bank to

deal in foreign exchange for specified purposes, to widen the access of foreign

exchange facilities to residents and tourists while ensuring efficient customer service

through competition. FFMCs are authorised to purchase foreign exchange from

residents and non-residents visiting India and to sell foreign exchange for certain

approved purposes. AD Category –I Banks / ADs Category – II / FFMCs may

appoint franchisees to undertake purchase of foreign currency*. No person shall

carry on or advertise that he carries on money changing business unless he is in

possession of a valid money changer’s licence issued by the Reserve Bank. Any

person found undertaking money changing business without a valid licence is liable

to be penalised under the Act ibid.

* Note :- Franchisees of AD Category –I Banks / ADs Category – II / 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 franchises of AD

Category –I Banks / ADs Category – II / FFMCs cannot sell foreign currency.

2. Guidelines for issuance of FFMC Licence :-

The guidelines for issue of new FFMC licence and renewal of FFMC licence, branch

licensing, approval for appointment of agents / franchisees and Know Your

Customer (KYC) / Anti Money Laundering (AML) / Combating the Financing of

Terrorism (CFT) Guidelines for Authorised Persons are given below.

(i) Entry Norms

(i) The applicant has to be a company registered under the Companies

Act, 1956.

(ii) The minimum Net Owned Funds (NOF) required for consideration as

FFMC are as follows:

Category Minimum Net Owned Funds

Single branch FFMC Rs.25 lakh

Multiple branch FFMC Rs.50 lakh

Note :- The Net Owned Funds of applicants, other than banks, should be

calculated as per the following.

(a) Owned Funds :- (Paid-up Equity Capital + Free reserves + Credit

balance in Profit & Loss A/c) minus (Accumulated balance of loss,

Deferred revenue expenditure and Other intangible assets)

(b) Net Owned Funds :- Owned funds minus the amount of investments

in shares of its subsidiaries, companies in the same group, all (other)

non-banking financial companies as also the book value of debentures,

bonds, outstanding loans and advances made to and deposits with its

subsidiaries and companies in the same group in excess of 10 per cent

of the Owned funds.

(ii) Documentation

Application in the form, as at Annex - II, should be submitted to the respective

Regional Office of the Foreign Exchange Department of the Reserve Bank under

whose jurisdiction the registered office of the applicant falls, along with the following

documents:

(a) Copy each of the Certificate of Incorporation and Certificate of

Commencement of Business of the company.

(b) Memorandum and Articles of Association containing a provision for

undertaking money changing business or an appropriate amendment

to this effect filed with the Company Law Board.

Auditors certifying the Net Owned Funds as on the date of application.

Copies of the audited Balance Sheet and Profit & Loss Account of the

company for the last three years, wherever applicable.

(d) Confidential Report from the applicant's banker in a sealed cover.

(e) A declaration to the effect that no proceedings have been initiated by /

are pending with the Directorate of Enforcement (DoE) / Directorate of

Revenue Intelligence (DRI) or any other law enforcing authorities,

against the applicant company or its directors and that no criminal

cases are initiated / pending against the applicant company or its

directors.

(f) A declaration to the effect that proper policy framework on KYC / AML /

CFT, in accordance with the guidelines issued vide A.P.(DIR Series)

Circular No. 17[ A.P.(FL/RL Series) Circular No. 04] dated November

27, 2009, as amended from time to time, will be put in place on

obtaining the approval of the Reserve Bank and before

commencement of operations.

(g) Details of sister / associated concerns operating in the financial sector,

like NBFCs, etc.

(h) A certified copy of the board resolution for undertaking money

changing business.

(iii) Basis for Approval

(i) Since several FFMCs are already functioning, fresh licences will be

issued on a selective basis to those who comply with all the licencing

requirements.

(ii) 'Fit and proper' criteria for the applicant FFMCs #

If any case by DoE / DRI or any other case by any other law enforcing

authorities, is initiated / pending against any company / its directors,

the company will not be considered as 'fit and proper' and its

application will not be considered for licencing as FFMC.

(# Also applicable to non-bank ADs Category - II)

(iii) ‘Fit and proper’ criteria for directors of FFMCs *

Please see SECTION- VIII for the details in this regard.

(* Also applicable to non-bank ADs Category - II)

(iv) Clearance by the Empowered Committee

The request for issuance of FFMC licence would be considered by the

Regional Office concerned of the Reserve Bank on the basis of the

clearance by an Empowered Committee, set up for the purpose.

(v) Reserve Bank’s decision in the matter of granting approval or

otherwise will be final and binding.

(vi) On obtaining approval from the Reserve Bank, a copy of the

registration under Shops & Establishment Act or any other

documentary evidence such as rent receipt, copy of lease agreement,

etc. should be submitted to the Regional Office concerned of the

Reserve Bank before commencement of the business.

(vii) The FFMC should commence its operations within a period of six

months from the date of issuance of licence and inform the Regional

Office concerned of the Reserve Bank.

(viii) New FFMCs should carry out their activities as per the instructions

specified in SECTIONS V and VI below and other instructions issued

by the Reserve Bank from time to time.

[Note:- Urban Cooperative Banks (UCBs), fulfilling the eligibility norms,

would be considered for authorization as Authorised Dealer Category-I /

Authorised Dealer Category-II only.]

SECTION II

Guidelines for Grant of Authorisation for Additional Branches :-

1. No FFMC shall carry on money changing business at any additional place of

business other than its permanent place of business except with the prior approval

of the Reserve Bank. An FFMC which intends to commence money changing

business at any additional place of business shall apply in writing to the respective

Regional Office of the Foreign Exchange Department under whose jurisdiction the

registered office of the applicant falls and the Reserve Bank may approve the

additional place of business subject to such conditions as deem fit. It is expected

that branches of Authorised Persons should be diversified and should be meeting

the demand of tourists,etc. Preference will be given to applications for branches in

remote areas of tourist attraction.

2. Applications for additional locations (places of business) should be accompanied

by the following:-

(a) Copy of the latest audited accounts with a certificate from the Statutory

Auditors regarding the position of Net Owned Funds as on the date of

application.

(b) Confidential Report from the applicant's banker in a sealed cover.

are pending at the Directorate of Enforcement (DoE) / Directorate of

Revenue Intelligence (DRI) or any other law enforcing authorities

against the applicant or its directors and that no criminal cases are

initiated / pending against the applicant or its directors. No new branch

license will be issued to any FFMC, against whom any major DoE /

DRI case is pending. In DoE / DRI pending cases of a minor nature, a

decision will be taken by the Reserve Bank on a case by case basis.

The categorization of pending DoE / DRI cases as major / minor will be

at the discretion of the Reserve Bank and the decision of the Reserve

Bank will be final and binding. Where any DoE / DRI case is

adjudicated and penalty is imposed, a view will be taken, on the basis

of the nature of the offence, provided no fresh case is instituted by DoE

/ DRI.

(d) A copy of the KYC / AML/ CFT policy framework existing in the

company.

(e) Brief write-up on the internal control systems, including internal and

external audit.

3. A copy of the registration under Shops & Establishment Act or any other

documentary evidence such as rent receipt, copy of lease agreement, etc. should be

submitted to the Regional Office concerned of the Reserve Bank before

commencement of business at an additional branch.

4. For opening Foreign Exchange Counters (full-fledged branches/ extension

counters) at the international airports in India, AD Category-I banks/ AD Category –

II/ FFMCs should adhere to following conditions.

(a) Foreign Exchange Counters in the arrival halls in international airports in India

shall ideally be established after the Customs Desk (Green Channel/Red

Channel). However, Foreign Exchange Counters may also be established

between the Immigration Desk and the Customs Desk in international airports

in India subject to the condition that these counters shall only purchase

foreign currency and sell Indian Rupees (INR) and "Encashment Certificates"

shall invariable be issued by the money changers to the customers.

(b) Foreign Exchange Counters in the departure halls in international airports in

India shall be established only before the Customs Desk or the immigration

desk, whichever comes first. Putting up suitable display at these counters,

reminding the passengers that the area is the last point for non-residents to

possess Indian Rupees (INR) may be followed up with the Airport Authorities.

5. The FFMC should commence operations of its additional branch within a period of

six months from the date of issuance of licence and inform the Regional Office

concerned of the Reserve Bank.

SECTION III

Guidelines for appointment of Agents / Franchisees by Authorized Dealer Category

– I Banks, Authorized Dealers Category - II and FFMCs :-

1. Under the Scheme, the Reserve Bank permits AD Category – I Banks, ADs

Category - II and FFMCs to enter into [franchisee (also referred as agency)]

agreements at their option for the purpose of carrying on Restricted Money

Changing business i.e. conversion of foreign currency notes, coins or travellers'

cheques into Indian Rupees.

2. Franchisee

A franchisee can be any entity which has a place of business and a minimum Net

Owned Funds of Rs.10 lakh. Franchisees can undertake only restricted money

changing business.

3. Franchisee Agreement

AD Category-I Banks / ADs Category-II / 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 Agency / Franchisee agreement to be entered into should include the following

salient features:

(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 Banks / ADs 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.

(d) The on-site inspection of the franchisee by the franchiser should be

conducted at least once a year.

4. Procedure for application

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-III) 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-III) on a post-facto basis along with similar declaration as indicated above.

5. Due Diligence of Franchisees

The AD Category Banks – I / ADs Category – II / FFMCs should undertake the

following minimum checks while conducting the due diligence of the franchisees :

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

• minimum Net Owned Funds of the franchisee.

• Shops & Establishments / 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 respect of incorporated entities).

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 case, if any, 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 franchisee, i.e., ` 10 lakh on an

ongoing basis.

6. Selection of Centers

(i) The AD Category-I banks / AD Category –II / FFMCs may appoint franchisees

within a distance of 100 kms. from their controlling branches concerned.

(ii) However, this distance criterion is exempted in case of a recognized 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 / AD 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.

7. Training

Franchisers are expected to impart training to the franchisees as regards operations

and maintenance of records.

8. Reporting, Audit and Inspection

The franchisers, i.e. the AD Category–I Banks / ADs Category–II / FFMCs, are

expected to 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

process 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. Anti Money Laundering (AML) / Know Your Customer (KYC) / Combating the

Financing of Terrorism (CFT) Guidelines

Franchisees are required to strictly adhere to the AML / KYC/ CFT guidelines, as

applicable to AD Category–I Banks / 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 DoE / DRI / 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.

SECTION IV

Guidelines for Renewal of licences of existing FFMCs :

1. The applicant should be a company registered under the Companies Act,

1956 having registered office within the area of jurisdiction of the respective

Regional Office of the Foreign Exchange Department.

2. The Net Owned Funds required are as follows:

Category Minimum Net Owned Funds

Single branch FFMC Rs..25 lakh

Multiple branch FFMC Rs..50 lakh

3. Applications for renewal should be submitted along with the documents,

mentioned below.

(a) Copy of the latest audited accounts with a certificate from the Statutory

Auditors regarding the position of Net Owned Funds as on date.

(b) Confidential Report from the applicant's banker in a sealed cover.

are pending with the Directorate of Enforcement / Directorate of

Revenue Intelligence or any other law enforcing authorities against the

applicant company or its directors and that no criminal cases are

initiated/ pending against the applicant company or its directors.

(d) A copy of the KYC / AML / CFT policy framework existing in the

company.

Note :- An application for the renewal of a money-changer’s licence shall be

made not later than one month, or such other period as the Reserve Bank may

prescribe, before the expiry of the licence. Where a person submits an

application for the renewal of his money changer’s licence, the licence shall

continue in force until the date on which the licence is renewed or the

application is rejected, as the case may be. No application for renewal of a

money-changer’s licence shall be made after the expiry of the licence.

SECTION V

Operational Instructions

1. Bringing in and taking out of Foreign Exchange

(i) Foreign exchange in any form can be brought into India freely without limit

provided it is declared on the Currency Declaration Form (CDF) on arrival to the

Custom Authorities. When foreign exchange brought in the form of currency notes or

travellers' cheques does not exceed US$ 10,000/- or its equivalent and / or the value

of foreign currency notes does not exceed US$ 5,000/- or its equivalent, declaration

thereof on CDF is not insisted upon.

(ii) Taking out foreign exchange in any form, other than foreign exchange obtained

from an authorized dealer or a money changer is prohibited unless it is covered by a

general or special permission of the Reserve Bank. Non-residents, however, have

general permission to take out an amount not exceeding the amount originally

brought in by them, subject to compliance with the provisions of sub-para (i) above.

2. Purchases of Foreign Currency from Public

(i) Authorised Money Changers (AMCs) / franchisees may freely purchase

foreign currency notes, coins and travellers cheques from residents as well as non-

residents. Where the foreign currency was brought in by declaring on form CDF, the

tenderer should be asked to produce the same. The AMC should invariably insist on

production of declaration in CDF.

(ii) AMCs may sell Indian Rupees to foreign tourists / visitors against

International Credit Cards / 1International Debit Cards and take prompt steps to

obtain reimbursement through normal banking channels.

1 A.P.(DIR Series) Circular No.96 dated 05.04.2013

3. Encashment Certificate

(i) AMCs may issue certificate of encashment when asked for in cases of

purchases of foreign currency notes, coins and travellers cheques from residents as

well as non-residents. These certificates bearing authorized signatures should be

issued on the letter head of the money changer and proper record should be

maintained.

(ii) In cases where encashment certificate is not issued, attention of the

customers should be drawn to the fact that unspent local currency held by non-

residents will be allowed to be converted into foreign currency only against

production of a valid encashment certificate.

4. Purchases from other AMCs and Authorized Dealers (ADs)

AMCs may purchase from other AMCs and ADs any foreign currency notes, coins

and encashed travellers’ cheques tendered in the normal course of business. Rupee

equivalent of the amount of foreign exchange purchased should be paid only by way

of crossed account payee cheque/Demand Draft/Bankers' cheque / Pay order.

5. Sale of foreign exchange

(I) Private Visits

AMCs may sell foreign exchange up to the prescribed ceiling (currently US $ 10,000)

specified in Schedule III to the Foreign Exchange Management (Current Account

Transaction) Rules, 2000 during a financial year to persons resident in India for

undertaking one or more private visits to any country abroad (except Nepal and

Bhutan). Exchange for such private visits will be available on a self-declaration basis

to the traveller regarding the amount of foreign exchange availed during a financial

year. Foreign nationals permanently resident in India are also eligible to avail of this

quota for private visits provided the applicant is not availing of facilities for remittance

of his salary, savings, etc., abroad in terms of extant regulations.

(II) Business visits

AMCs may sell foreign exchange to persons resident in India for undertaking

business travel or for attending a conference or specialized training or for

maintenance expenses of a patient going abroad for medical treatment or check up

abroad or for accompanying as attendant to a patient going abroad for medical

treatment / check-up up to the limits (currently US $ 25,000 per visit) specified in

Schedule III to FEMA (Current Account Transactions) Rules, 2000.

(III) Forex Pre-paid Cards

Authorised Dealers Category-II may issue forex pre-paid cards to residents travelling

on private/business visit abroad, subject to KYC/AML/CFT requirements. However,

the settlement in respect of forex pre-paid cards may be effected through AD

Category-I banks.

Conditions

i. The Reserve Bank will not generally, prescribe the documents which should be

verified by the AMCs while releasing foreign exchange. In this connection,

attention of AMCs is drawn to sub-section (5) of Section 10 of FEMA, 1999.

ii. In case of issue of travellers’ cheques, the traveler should sign the cheques in

the presence of an authorized official and the purchaser’s acknowledgement for

receipt of the travellers’ cheques should be held on record.

iii. AMCs may release foreign exchange for travel purposes on the basis of a

declaration given by the traveler regarding the amount of foreign exchange

availed of during the financial year.

iv. AMCs may accept payment in cash up to Rs.50,000/- (Rupees fifty thousand

only) against sale of foreign exchange for travel abroad (for private visit or for any

other purpose). Wherever the sale of foreign exchange exceeds the amount

equivalent to Rs.50,000/-, the payment must be received only by a crossed

cheque drawn on the applicant’s bank account or crossed cheque drawn on the

bank account of the firm / company sponsoring the visit of the applicant or

Banker’s cheque / Pay Order / Demand Draft. For this purpose, where the Rupee

equivalent of foreign exchange drawn exceeds Rs. 50,000/- either for any single

drawal or more than one drawal reckoned together for a single journey visit, it

should be paid by crossed cheque/ Banker’s cheque / Pay Order / Demand

Draft. In addition to the payment by Rupees/ through crossed cheque/ Banker’s

cheque/ Pay order/ Demand draft, AMCs may also accept the payments made

by the traveller through debit cards/ credit cards/ prepaid cards for travel abroad

(for private visit or for any other purpose) provided- (i) KYC/ AML / CFT

guidelines are complied with, (ii) sale of foreign currency/ issue of foreign

currency travellers’ cheques is within the limits (credit/ prepaid cards) prescribed

by the bank, (iii) the purchaser of foreign currency/ foreign currency travellers’

cheque and the credit/ debit/ prepaid card holder is one and the same person.

v. The sale of foreign currency notes and coins within the overall entitlement of

foreign exchange should be restricted to the limits prescribed by the Reserve

Bank from time to time for the country of visit of the traveller.

6. Sales against Reconversion of Indian Currency

AMCs may convert into foreign currency, unspent Indian currency held by non-

residents at the time of their departure from India, provided a valid Encashment

Certificate is produced.

Note (1) : AMCs may convert at their discretion, unspent Indian currency up to

`.10,000 in the possession of non-residents if, for bonafide reasons, the person is

unable to produce an Encashment Certificate after ensuring that the departure is

scheduled to take place within the following seven days.

Note (2) : ADs Category – I, ADs Category – II and FFMCs may provide facility for

reconversion of Indian Rupees to the extent of Rs.50,000/- to foreign tourists (not

NRIs) against ATM Receipts based on the following documents.

• Valid Passport and VISA

• Ticket confirmed for departure within 7 days.

• Original ATM slip (to be verified with the original debit/ credit card).

7. Cash Memo

AMCs may issue a cash memo, if asked for, on official letterhead to travellers to

whom foreign currency is sold by them. The cash memo may be required for

production to emigration authorities while leaving the country.

8. Rates of Exchange

AMCs may put through transactions relating to foreign currency notes and travellers'

cheques at rates of exchange determined by market conditions and in alignment

with the ongoing market rates.

9. Display of Exchange Rate Chart

AMCs should display at a prominent place in or near the public counter, a chart

indicating the rates for purchase/sale of foreign currency notes and travellers'

cheques for all the major currencies and the card rates for any day, should be

updated, latest by 10:30 a.m.

10. Foreign Currency Balances

(i) AMCs should keep balances in foreign currencies at reasonable levels and

avoid build up of idle balances with a view to speculating on currency movements.

(ii) Franchisees should surrender foreign currency notes, coins and travellers'

cheques purchased only to their franchisers within seven working days.

(iii) The transactions between authorized dealers and FFMCs should be settled

by way of account payee crossed cheques / demand drafts. Under no circumstances

should settlement be made in cash.

11. Replenishment of Foreign currency Balances

(i) AMCs may obtain their normal business requirements of foreign currency

notes from other AMCs / authorized dealers in foreign exchange in India, against

payment in rupees made by way of account payee crossed cheque / Demand Draft.

(ii) Where AMCs are unable to replenish their stock in this manner, they may

make an application to the Forex Markets Division, Foreign Exchange Department,

Central Office, Reserve Bank of India, Mumbai through an AD Category-I for

permission to import foreign currency into India. The import should take place

through the designated AD Category-I through whom the application is made.

12. Export / Disposal of surplus Foreign Currency Notes / Travellers'

Cheques

AMCs may export surplus foreign currency notes / encashed travellers' cheques to

an overseas bank through designated Authorized Dealer Category - I in foreign

exchange for realization of their value through the latter. FFMCs may also export

surplus foreign currency to private money changers abroad subject to the condition

that either the realizable value is credited in advance to the AD Category – I bank’s

nostro account or a guarantee is issued by an international bank of repute covering

the full value of the foreign currency notes / coins to be exported.

13. Write-off of fake foreign currency notes

In the event of foreign currency notes purchased being found fake/forged

subsequently, AMCs may write- off up to US $ 2000 per financial year after approval

of their Top Management after exhausting all available options for recovery of the

amount. Any write-off in excess of the above amount, would require the approval of

the Regional Office concerned of the Foreign Exchange Department of the Reserve

Bank.

14. Registers and Books of Accounts of Money-changing Business

(i) AMCs shall maintain the following Registers in respect of their money-

changing transactions :

(a) Daily Summary and Balance Book (Foreign currency notes / coins) in

form FLM 1 (Annex-IV).

(b) Daily Summary and Balance Book (Travellers' cheques) in form FLM 2

(Annex-V).

FLM 3 (Annex-VI).

(d) Register of purchases of foreign currency notes / coins from authorized

dealers and authorized money changers in form FLM 4 (Annex-VII).

(e) Register of sales of foreign currency notes / coins and foreign currency

travellers' cheques to the public in form FLM 5 (Annex-VIII).

(f) Register of sales of foreign currency notes / coins to authorized

dealers / Full Fledged Money Changers / overseas banks in form FLM

6 (Annex-IX).

(g) Register of travellers' cheques surrendered to authorized dealers /

authorized money changers / exported in form FLM 7 (Annex-X).

(ii) All registers and books should be kept up-to-date, cross-checked and

balances verified daily.

(iii) Transactions not pertaining to money changing business of the AMC should

not be mixed up with money changing transactions. In other words, the

registers and books of account should show clearly the trail of transactions

pertaining to money changing business.

(iv) Separate registers should be maintained for each establishment, if the AMC

maintains more than one place of business.

Note :- Inter-branch transfer of foreign currencies should be accounted as

stock transfer and not as sales.

15. Submission of Statements to the Reserve Bank

(i) AMCs should submit to the office of the Reserve Bank which has issued the

license, a monthly consolidated statement for all its offices in respect of sale

and purchase of foreign currency notes in form FLM 8 (Annex-XI) so as to

reach not later than the 10th of the succeeding month.

(ii) AMCs should submit to the Regional Office concerned of the Foreign

Exchange Department, Reserve Bank, a monthly statement indicating details

of receipt / purchase of US $ 10,000 (or its equivalent) and above per

transactions in the enclosed format as at Annex-XII, within 10 days of the

close of the month. FFMCs / ADs Category - II should include transactions of

their franchisees in their statement.

(iii) AMCs should submit a quarterly statement regarding Foreign Currency

Account/s maintained in India in their names with AD Category-I Banks to the

Regional Office concerned of the Foreign Exchange Department, Reserve

Bank as per the format in Annex-XIII.

(iv) An Annual Statement should be submitted by all the AMCs to the respective

Regional Offices of the Foreign Exchange Department, Reserve Bank which

have issued the licenses within one month of the financial year-end, giving

the details of the amount written off during the financial year, as per the

format as at Annex-XIV.

16. Inspection of Transactions of AMCs

Section 12(1) of Foreign Exchange Management Act 1999, empowers any officer of

Reserve Bank specially authorized in this behalf to inspect the books and accounts

and other documents of AMCs. The AMCs should provide all assistance and co-

operation to Inspecting Officers in carrying out their inspection. Failure to produce

any books of account or other document or to furnish any statement or information

or to answer any question relating to the money changing transactions to the

Inspecting Officers, shall be deemed to be a contravention of the provisions of the

Act ibid.

17. Concurrent Audit

(i) AMCs should put in place a system of Concurrent Audit of the transactions

undertaken by them.

(ii) All single branch AMCs having a turnover of more than US $ 100,000 or

equivalent per month . Single branch AMCs having turnover of less than US $

100,000 or its equivalent may institute a system of quarterly audit. AMCs having

multiple branches, may put in place a system of Concurrent Audit which will cover 80

per cent of the transactions value-wise under a system of monthly audit and rest 20

per cent of the transactions value-wise under quarterly audit.

(iii) Appointment / selection of concurrent auditors is left to the discretion of the

AMCs. The concurrent auditors should check all the transactions of the AMCs and

ensure that all the instructions issued by the Reserve Bank from time to time have

been complied with. The Statutory Auditors are required to certify that the

Concurrent Audit and the internal control systems are working satisfactorily.

18. Temporary Money Changing Facilities

AMCs are authorized to transact money changing business only at the location or

locations specifically indicated in the licence. If it is intended to provide money

changing facilities on a temporary basis on certain special occasions, a separate

application should be made for the purpose to the Regional Office concerned of the

Foreign Exchange Department of the Reserve Bank. Full details such as period for

which the exchange counter will be operated, volume of business expected, manner

of accounting of the transactions, letter from organizers making available venue for

the money changing facilities, etc. should be submitted.

19. (A) Opening of Foreign Currency Accounts by AMCs

AMCs, with the approval of the respective Regional Offices of the Foreign Exchange

Department, may be allowed to open Foreign Currency Accounts in India, subject to

the following conditions:-

(i) Only one account may be permitted at a particular centre.

(ii) Only the value of foreign currency notes/ encashed TCs exported through the

specific bank and realized can be credited to the account.

(iii) Balances in the accounts shall be utilized only for settlement of liabilities on

account of-

(a) TCs sold by the AMCs and

(b) Foreign currency notes acquired by the AMCs from AD Category-I

banks.

(iv) No idle balance shall be maintained in the said account.

(B) Opening of Nostro Account by Authorised Dealers Category-II

Authorised Dealers Category-II may open Nostro Accounts after getting one time

approval from the Reserve Bank, subject to following terms and conditions.

i) Only one Nostro account for each currency may be opened;

ii) Balances in the account should be utilized only for the settlement of

remittances sent for permissible purposes and not for the settlement in respect

of forex prepaid cards;

iii) No idle balance shall be maintained in the said account; and

iv) They will be subject to reporting requirements as prescribed from time to

time.

20. Submission of Balance Sheet and maintenance of NOF

All AMCs are required to submit their annual audited balance sheet to the respective

Regional office of the Reserve Bank for the purpose of verification of their Net

Owned Funds along-with a certificate from the statutory auditors regarding the NOF

as on the date of the balance sheet. As AMCs are expected to maintain the

minimum NOF on an ongoing basis, if there is any erosion in their NOF below the

minimum level, they are required to bring it to the notice of the Reserve Bank

immediately along with a detailed time bound plan for restoring the Net Owned

Funds to the minimum required level.

21. Participation by Full Fledged Money Changers (FFMCs) and Authorised

Dealers Category-II (ADs Category-II) in the Currency Futures and

Exchange traded Currency Options markets

FFMCs and ADs Category-II [which are not Regional Rural Banks (RRBs), Local

Area Banks (LABs), Urban Co-operative Banks (UCBs) and Non-Banking Financial

Companies (NBFCs)], having a minimum net worth of ` 5 crore, may participate in

the designated currency futures and currency options on exchanges recognized by

the Securities and Exchange Board of India (SEBI) as clients only for the purpose of

hedging their underlying foreign exchange exposures. FFMCs and ADs Category–II

which are RRBs, LABs, UCBs and NBFCs, may be guided by the instructions issued

by the respective regulatory Departments of the Reserve Bank in this regard.

SECTION VI

KYC/ AML/ CFT Guidelines

Detailed Know Your Customer (KYC) /Anti-Money Laundering (AML) /Combating the

Financing of Terrorism (CFT) guidelines in respect of money changing activities are

detailed in Annex-I.

SECTION VII

Revocation of Licence

The Reserve Bank reserves the right to revoke the licence granted to an AMC at any

time if the Reserve Bank is satisfied that (a) it is in public interest to do so or (b) the

AMC has failed to comply with any condition subject to which the authorisation is

granted or has contravened any of the provisions of the Foreign Exchange

Management Act, 1999 or any rule, regulation, notification, direction or order made

there-under. The Reserve Bank also reserves the right to revoke the authorisation of

any of the offices for infringement of any statutory or regulatory provision. The

Reserve Bank may at any time vary or revoke any of the existing conditions of a

money changer’s licence or impose new conditions.

SECTION VIII

[See SECTION I, Paragraph 2 (iii) (iii)]

‘Fit and proper’ criteria for directors of FFMCs / non-bank ADs Category - II

(a) The Boards of FFMCs / non-bank ADs Category - II should undertake a

process of due diligence to determine the suitability of the person for appointment /

continuing to hold appointment as a director on the Board, based upon qualification,

expertise, track record, integrity and other ‘fit and proper’ criteria. For assessing

integrity and suitability, factors like criminal record, if any, financial position, civil

action initiated to pursue personal debts, refusal of admission to or expulsion from

professional bodies, sanctions imposed by regulators or similar bodies, previous

questionable business practices, etc. should be considered. The Board of Directors

should assess ‘fit and proper’ status by calling for information by way of self-

declaration, verification reports from market, etc. FFMCs / non-bank ADs Category -

II should obtain necessary information and declaration from the proposed / existing

directors for the purpose in Proforma given at the end.

(b) The process of due diligence should be undertaken by the FFMCs / non-bank

ADs Category - II at the time of appointment / renewal of appointment.

Nomination Committees to scrutinize the declarations.

(d) Based on the information provided in the signed declaration, Nomination

Committees should decide on the acceptance or otherwise and may make

references, where considered necessary to the appropriate authority / persons, to

ensure their compliance with the requirements indicated.

(e) FFMCs / non-bank ADs Category - II should obtain annually as on 31st March

a simple declaration that the information already provided has not undergone

change and where there is any change, requisite details are furnished by the

directors forthwith.

(f) Further, the candidate should normally not exceed 70 years of age, should

not be a Member of Parliament / Member of Legislative Assembly / Member of

Legislative Council.

(g) Any change in directors during the year should be reported to the Regional

Office concerned of the Foreign Exchange Department, Reserve Bank of India in the

Proforma given below.

(h) Comments of respective Departments of the Reserve Bank will be obtained on

the operations of an applicant who / whose parent organisation is already licenced /

authorised by the Reserve Bank.

Proforma

Information about New Directors / Change of Directors of the FFMC / non-bank

AD Category – II

1. Name :

2. Designation :

3. Nationality :

4. Age :

5. Business Address :

6. Residential Address :

7. Educational / professional qualifications :

8. Line of business or vocation :

9. Name/s of other companies in which the person has

held the post of Chairman / Managing Director /

Director / Chief Executive Officer

10. (i) Whether associated as promoter, Managing

Director, Chairman or Director with any other FFMC /

AD Category - II?

(ii) If yes, the name/s of the company/ies :

11. (i) Whether prosecuted/convicted for any economic

offence either in the individual capacity or as a

partner / director of any firm / company

(ii) If yes, particulars thereof :

12. Experience in money changing business (number of

years)

13. Equity shareholding in the company

No. of shares

Face value

Percentage to total equity share capital of the

company:

Signature

Date

Place

Name

Designation

(Chief Executive Officer)

Company

Annex-I

[See SECTION VI]

PART A

KYC / AML / CFT Guidelines for money changing activities

Know Your Customer (KYC) norms / Anti-Money Laundering (AML) standards /

Combating the Financing of Terrorism (CFT) / Obligation of APs under

Prevention of Money Laundering Act, (PMLA), 2002, as amended by

Prevention of Money Laundering (Amendment) Act, 2009 – Money Changing

activities

1. Introduction

The offence of Money Laundering has been defined in Section 3 of the Prevention of

Money Laundering Act, 2002 (PMLA) as "whosoever directly or indirectly attempts to

indulge or knowingly assists or knowingly is a party or is actually involved in any

process or activity connected with the proceeds of crime and projecting it as

untainted property shall be guilty of offence of money laundering". Money

Laundering can be called a process by which money or other assets obtained as

proceeds of crime are exchanged for "clean money" or other assets with no obvious

link to their criminal origins.

There are three stages of money laundering during which there may be numerous

transactions made by launderers that could alert an institution to criminal activity –

• Placement - the physical disposal of cash proceeds derived from illegal

activity.

• Layering - separating illicit proceeds from their source by creating complex

layers of financial transactions designed to disguise the audit trail and provide

anonymity.

• Integration - the provision of apparent legitimacy to criminally derived wealth.

If the layering process has succeeded, integration schemes place the

laundered proceeds back into the economy in such a way that they re-enter

the financial system appearing to be normal business funds.

2. The objective

The objective of prescribing KYC/AML/CFT guidelines is to prevent the system of

purchase and / or sale of foreign currency notes / Travellers' cheques by Authorised

Persons (referred as APs hereinafter) from being used, intentionally or

unintentionally, by criminal elements for money laundering or terrorist financing

activities. KYC procedures also enable APs to know/understand their customers and

their financial dealings better which in turn help them manage their risks prudently.

3. Definition of Customer

For the purpose of KYC policy, a ‘Customer’ is defined as :

• a person who undertakes occasional/regular transactions;

• an entity that has a business relationship with the AP;

• one on whose behalf the transaction is made (i.e. the beneficial owner)

[In view of Government of India Notification dated February 12, 2010 - Rule 9,

sub-rule (1 A) of PML Rules - ' Beneficial Owner' means the natural person who

ultimately owns or controls a client and or the person on whose behalf a

transaction is being conducted, and includes a person who exercise ultimate

effective control over a juridical person].

4. Guidelines

4.1 General

APs should keep in mind that the information collected from the customer while

undertaking transactions is to be treated as confidential and details thereof are not to

be divulged for cross selling or any other like purposes. APs should, therefore,

ensure that information sought from the customer is relevant to the perceived risk, is

not intrusive, and is in conformity with the guidelines issued in this regard. Any other

information from the customer, wherever necessary, should be sought separately

with his/her consent.

4.2 KYC Policy

APs should frame their KYC policies incorporating the following four key elements:

a) Customer Acceptance Policy;

b) Customer Identification Procedures;

c) Monitoring of Transactions; and

d) Risk Management.

4.3 Customer Acceptance Policy (CAP)

a) Every AP should develop a clear Customer Acceptance Policy laying down

explicit criteria for acceptance of customers. The Customer Acceptance Policy must

ensure that explicit guidelines are in place on the following aspects of customer

relationship in the AP:

(i) No transaction is conducted in anonymous or fictitious/benami

name(s).

[In view of In terms of Government of India Notification dated June 16,

2010 Rule 9, sub-rule (1C) - APs should not allow any transaction in any

anonymous or fictitious name (s) or on behalf of other persons whose

identity has not been disclosed or cannot be verified].

(ii) Parameters of risk perception are clearly defined in terms of the nature

of business activity, location of customer and his clients, mode of

payments, volume of turnover, social and financial status etc. to enable

categorisation of customers into low, medium and high risk (APs may

choose any suitable nomenclature viz. level I, level II and level III).

Customers requiring very high level of monitoring, e.g. Politically

Exposed Persons (PEPs) may, if considered necessary, be

categorised even higher.

(iii) Documentation requirements and other information to be collected in

respect of different categories of customers depending on perceived

risk and keeping in mind the requirements of Prevention of Money

Laundering Act, (PMLA), 2002, as amended by Prevention of Money

Laundering (Amendment) Act, 2009, Prevention of Money-Laundering

(Maintenance of Records of the Nature and Value of Transactions, the

Procedure and Manner of Maintaining and Time for Furnishing

Information and Verification and Maintenance of Records of the

Identity of the Clients of the Banking Companies, Financial Institutions

and Intermediaries) Rules, 2005 as well as instructions/guidelines

issued by the Reserve Bank, from time to time.

(iv) Not to undertake any transaction where the AP is unable to apply

appropriate customer due diligence measures i.e. AP is unable to

verify the identity and /or obtain documents required as per the risk

categorisation due to non cooperation of the customer or non reliability

of the data/information furnished to the AP. It is, however, necessary to

have suitable built in safeguards to avoid harassment of the customer.

In the circumstances when an AP believes that it would no longer be

satisfied that it knows the true identity of the customer (individual/

business entity), the AP should file an STR with FIU-IND.

(v) Circumstances, in which a customer is permitted to act on behalf of

another person/entity, should be clearly spelt out, the beneficial owner

should be identified and all reasonable steps should be taken to verify

his identity.

b) APs should prepare a profile for each customer, where a business

relationship is established, based on risk categorisation. The customer profile may

contain information relating to customer’s identity, his sources of funds,

social/financial status, nature of business activity, information about his clients’

business and their location etc. The nature and extent of due diligence will depend

on the risk perceived by the AP. However, while preparing customer profile, APs

should take care to seek only such information from the customer, which is relevant

to the risk category. The customer profile is a confidential document and details

contained therein should not be divulged for cross selling or any other purposes.

c) For the purpose of risk categorisation, individuals (other than High Net Worth)

and entities whose identities and sources of wealth can be easily identified and

transactions by whom by and large conform to the known profile, may be

categorised as low risk. Customers that are likely to pose a higher than average risk

should be categorised as medium or high risk depending on customer's background,

nature and location of activity, country of origin, sources of funds and his client

profile etc. APs should apply enhanced due diligence measures based on the risk

assessment, thereby requiring intensive ‘due diligence’ for higher risk customers,

especially those for whom the sources of funds are not clear. Examples of

customers requiring enhanced due diligence include (a) nonresident customers;(b)

customers from countries that do not or insufficiently apply the FATF standards (c)

high net worth individuals; (d) trusts, charities, NGOs and organizations receiving

donations; (e) companies having close family shareholding or beneficial

ownership; (f) firms with 'sleeping partners '; (g) politically exposed persons (PEPs);

(h) non-face to face customers ; and (i) those with dubious reputation as per public

information available etc. However, only Non Profit Organisations (NPOs)/ Non

Government Organisations (NGOs) promoted by United Nations or its agencies may

be classified as low risk customer.

d) It is important to bear in mind that the adoption of customer acceptance policy

and its implementation should not become too restrictive and must not result in

denial of money changing services to general public.

4.4 Customer Identification Procedure (CIP)

a) The policy approved by the Board of APs should clearly spell out the

Customer Identification Procedure to be carried out at different stages i.e. while

establishing a business relationship; carrying out a financial transaction or when the

AP has a doubt about the authenticity/veracity or the adequacy of the previously

obtained customer identification data. Customer identification means identifying the

customer and verifying his/her identity by using reliable, independent source

documents, data or information. APs need to obtain sufficient information necessary

to establish, to their satisfaction, the identity of each new customer, whether

occasional or business relationship, and the purpose of the intended nature of

relationship. Being satisfied means that the AP must be able to satisfy the

competent authorities that due diligence was observed based on the risk profile of

the customer in compliance with the extant guidelines in place. Such risk based

approach is considered necessary to avoid disproportionate cost to APs and a

burdensome regime for the customers.

Besides risk perception, the nature of information/documents required would

also depend on the type of customer (individual, corporate etc.). For customers that

are natural persons, the APs should obtain sufficient identification document/s to

verify the identity of the customer and his address/location. For customers that are

legal persons or entities, the AP should (i) verify the legal status of the legal

person/entity through proper and relevant documents; (ii) verify that any person

purporting to act on behalf of the legal person/entity is so authorised and identify and

verify the identity of that person; and (iii) understand the ownership and control

structure of the customer and determine who are the natural persons who ultimately

control the legal person. Customer identification requirements in respect of a few

typical cases, especially, legal persons requiring an extra element of caution are

given in paragraph 4.5 below for guidance of APs. APs may, however, frame their

own internal guidelines based on their experience of dealing with such

persons/entities, their normal prudence and the legal requirements as per

established practices. If the AP decides to undertake such transactions in terms of

the Customer Acceptance Policy, the AP should take reasonable measures to

identify the beneficial owner(s) and verify his/ her/t heir identity in a manner so that it

is satisfied that it knows who the beneficial owner(s) is/are [In view of Government

of India Notification dated June 16, 2010 - Rule 9 sub-rule (1A) of PML Rules].

Note : Rule 9(1A) of Prevention of Money Laundering Rules 2005 requires that every

Authorised Person under money changing activity shall identify the beneficial owner and

take all reasonable steps to verify his identity while undertaking money changing

activities. The term "beneficial owner" has been defined as the natural person who

ultimately owns or controls a client and/or the person on whose behalf the transaction is

being conducted, and includes a person who exercises ultimate effective control over a

juridical person. Government of India has since examined the issue and has specified

the procedure for determination of Beneficial Ownership. The procedure as advised by

the Government of India is as under:

A. Where the client is a person other than an individual or trust, the Authorised Person

shall identify the beneficial owners of the client and take reasonable measures to verify

the identity of such persons, through the following information:

(i) The identity of the natural person, who, whether acting alone or together, or

through one or more juridical person, exercises control through ownership or who

ultimately has a controlling ownership interest.

Explanation: Controlling ownership interest means ownership of/entitlement to

more than 25 percent of shares or capital or profits of the juridical person, where

the juridical person is a company; ownership of/entitlement to more than 15% of

the capital or profits of the juridical person where the juridical person is a

partnership; or, ownership of/entitlement to more than 15% of the property or

capital or profits of the juridical person where the juridical person is an

unincorporated association or body of individuals.

(ii) In cases where there exists doubt under (i) as to whether the person with the

controlling ownership interest is the beneficial owner or where no natural person

exerts control through ownership interests, the identity of the natural person

exercising control over the juridical person through other means.

Explanation: Control through other means can be exercised through voting rights,

agreement, arrangements, etc.

(iii) Where no natural person is identified under (i) or (ii) above, the identity of the

relevant natural person who holds the position of senior managing official.

B. Where the client is a trust, the Authorised Person shall identify the beneficial owners

of the client and take reasonable measures to verify the identity of such persons,

through the identity of the settler of the trust, the trustee, the protector, the beneficiaries

with 15% or more interest in the trust and any other natural person exercising ultimate

effective control over the trust through a chain of control or ownership.

C. Where the client or the owner of the controlling interest is a company listed on a stock

exchange, or is a majority-owned subsidiary of such a company, it is not necessary to

identify and verify the identity of any shareholder or beneficial owner of such companies.

b) Some close relatives, e.g., wife, son, daughter and parents etc. who live with

their husband, father/mother and son/ daughter, as the case may be, may find it

difficult to undertake transactions with APs as the utility bills required for address

verification are not in their name. It is clarified, that in such cases, APs can obtain an

identity document and a utility bill of the relative with whom the prospective customer

is living along with a declaration from the relative that the said person (prospective

customer) wanting to undertake a transaction is a relative and is staying with

him/her. APs can use any supplementary evidence such as a letter received through

post for further verification of the address. While issuing operational instructions to

the branches on the subject, APs should keep in mind the spirit of instructions

issued by the Reserve Bank and avoid undue hardships to individuals who are,

otherwise, classified as low risk customers.

c) APs should introduce a system of periodic updation of customer identification

data (including photograph/s) if there is a continuing business relationship.

d) An indicative list of the nature and type of documents/information that may be

may be relied upon for customer identification is given in PART B of Annex-I of this

circular. It is clarified that correct permanent address, as referred to in PART B of

Annex-I, means the address at which a person usually resides and can be taken as

the address as mentioned in a utility bill or any other document accepted by the AP

for verification of the address of the customer. When there are suspicions of money

laundering or financing of the activities relating to terrorism or where there are

doubts about the adequacy or veracity of previously obtained customer identification

data, APs should review the due diligence measures including verifying again the

identity of the client and obtaining information on the purpose and intended nature of

the business relationship, as the case may be. [In view of Government of India

Notification dated June 16, 2010- Rule 9 sub-rule (1D) of PML Rules].

e) Purchase of foreign exchange from customers

(i) For purchase of foreign currency notes and/ or Travellers’ Cheques from

customers for any amount less than Rs.50,000/- or its equivalent, photocopies of the

identification document need not be obtained. However, full details of the

identification document should be maintained. If the Authorised Person has reason

to believe that a customer is intentionally structuring a transaction into a series of

transactions below the threshold of Rs.50000/-, the A.P. should verify identity and

address of the customer and also consider filing a suspicious transaction report to

FIU-IND.

(ii) For purchase of foreign currency notes and/ or Travellers’ Cheques from

customers for any amount equal to or in excess of Rs.50,000/- or its equivalent, the

identification documents, as mentioned at PART B of Annex-I of this circular,

should be verified and copies retained.

(iii) (a) Requests for payment in cash in Indian Rupees to resident customers

towards purchase of foreign currency notes and/ or Travellers’ Cheques from them

may be acceded to the extent of only US $ 1000 or its equivalent per transaction.

(b) Requests for payment in cash by foreign visitors / Non-Resident Indians

may be acceded to the extent of only US $ 3000 or its equivalent.

transaction, may be treated as single transaction for the above purpose and

also for reporting purposes.

(d) In all other cases, APs should make payment by way of 'Account Payee'

cheque / demand draft only.

(iv) Where the amount of forex tendered for encashment by a non-resident or a

person returning from abroad exceeds the limits prescribed for Currency Declaration

Form (CDF), the AP should invariably insist for production of declaration in CDF.

(v) In case of any suspicion of money laundering or terrorist financing, irrespective

of the amount involved, enhanced Customer Due Diligence (CDD) should be

applied. Whenever there is a suspicion of money laundering or terrorist financing or

when other factors give rise to a belief that the customer does not in fact pose a low

risk, APs should carry out a full scale CDD before undertaking any transaction for

the customer.

f) Sale of foreign exchange to customers

(i) In all cases of sale of foreign exchange, irrespective of the

amount involved, for identification purpose the passport of the customer

should be insisted upon and sale of foreign exchange should be made only

on personal application and after verification of the identification document. A

copy of the identification document should be retained by the AP.

(ii) Payment in excess of Rs.50,000/- towards sale of foreign exchange

should be received only by crossed cheque drawn on the bank account of the

applicant’s firm/ company sponsoring the visit of the applicant / Banker’s

cheque / Pay Order / Demand Draft. Such payment can also be received

through debit cards/ credit cards/ prepaid cards provided (a) KYC/ AML / CFT

guidelines are complied with, (b) sale of foreign currency/ issue of Foreign

Currency Travellers’ cheques is within the limits (credit/ prepaid cards)

prescribed by the bank, (c) the purchaser of foreign currency/ Foreign

Currency Travellers’ cheque and the credit/ debit/ prepaid card holder is one

and the same person.

(iii) All purchases made by a person within one month i.e. within 30 days from the

date of last transaction, may be treated as single transaction for the above purpose

and also for reporting purposes. For sale of foreign exchange to a person within

his/her eligibility through more than one drawal within 30 days or for a single

journey/visit abroad, APs may receive second and subsequent payments only by

crossed cheque drawn on the bank account of the applicant's firm/company

sponsoring the visit of the applicant/Bank's cheque / Pay Order / Demand Draft /

debit cards / credit cards / prepaid cards, if the total rupee payment, including

payments on earlier drawal /s, exceeds Rs. 50,000/- on the second or subsequent

drawals.

(iv) Encashment Certificate, wherever required, should also be insisted upon.

g) Establishment of business relationship

Relationship with a business entity like a company / firm/ trusts and foundations

should be established only after conducting due diligence by obtaining and verifying

suitable documents, as mentioned at PART B of Annex-I of this circular. Copies of

all documents called for verification should be kept on record. APs should obtain

information on the purpose and intended nature of the business relationship. APs

should exercise ongoing due diligence with respect to the business relationship with

every client and closely examine the transactions in order to ensure that they are

consistent with their knowledge of the customer, its business and risk profile. APs

should ensure that documents, data or information collected under the Customer

Due Diligence process is kept up-to-date and relevant by undertaking reviews of

existing records, particularly for higher risk categories of customers or business

relationships. When a business relationship is already in existence and it is not

possible to perform customer due diligence on the customer in respect of business

relationship, APs should terminate the business relationship and make a Suspicious

Transaction Report to FIU-IND. In the circumstances when an AP believes that it

would no longer be satisfied that it knows the true identity of the customer

(individual/ business entity), the AP should also file an STR with FIU-IND.

4.5 Customer Identification Requirements – Indicative Guidelines

i) Transactions by Trust/Nominee or Fiduciary Customers

There exists the possibility that trust/nominee or fiduciary relationship can be used to

circumvent the customer identification procedures. APs should determine whether

the customer is acting on behalf of another person as trustee/nominee or any other

intermediary. If so, APs should insist on receipt of satisfactory document of identity

of the intermediaries and of the persons on whose behalf they are acting, as also

obtain details of the nature of the trust or other arrangements in place. While

undertaking a transaction for a trust, APs should take reasonable precautions to

verify the identity of the trustees and the settlers of trust (including any person

settling assets into the trust), grantors, protectors, beneficiaries and signatories. In

all cases beneficiaries should be identified with reference to necessary documents.

In the case of a 'foundation', steps should be taken to verify the founder managers/

directors and the beneficiaries.

ii) Transactions by companies and firms

APs need to be vigilant against business entities being used by individuals as a

‘front’ for undertaking transactions with APs. APs should examine the control

structure of the entity, determine the source of funds and identify the natural persons

who have a controlling interest and who comprise the management. These

requirements may be moderated according to the risk perception e.g. in the case of

a company that is listed on a recognized stock exchange, it will not be necessary to

identify all the shareholders.

iii) Transactions by Politically Exposed Persons (PEPs)

Politically exposed persons are individuals who are or have been entrusted with

prominent public functions in a foreign country, e.g., Heads of States or of

Governments, senior politicians, senior government/judicial/military officers, senior

executives of state-owned corporations, important political party officials, etc. APs

should gather sufficient information on any person/customer of this category

intending to undertake a transaction or establish a business relationship and check

all the information available on the person in the public domain. APs should verify

the identity of the person and seek information about the source of wealth and

source of funds before accepting the PEP as a customer. The decision to undertake

a transaction with a PEP should be taken at a senior level which should be clearly

spelt out in the Customer Acceptance Policy. APs should also subject such

transactions to enhanced monitoring on an ongoing basis. The above norms may

also be applied to transactions with the family members or close relatives of PEPs.

The above norms may also be applied to customers who become PEPs subsequent

to establishment of the business relationship.

Where a customer subsequently becomes a PEP after a business relationship has

already been established, enhanced CDD should be performed on such customers

and decision to continue business relationship with the PEP should be taken at a

sufficiently senior level. These instructions are also applicable to individual

transactions/ business relationship where a PEP is the ultimate beneficial owner.

Further, in regard to individual transactions/ business relationship in case of PEPs, it

is reiterated that APs should have appropriate ongoing risk management procedures

for identifying and applying enhanced CDD to PEPs, customers who are family

members or close relatives of PEPs and individual transactions/ business

relationship of which a PEP is the ultimate beneficial owner.

4.6 Monitoring of Transactions

Ongoing monitoring is an essential element of effective KYC procedures. APs can

effectively control and reduce their risk only if they have an understanding of the

normal and reasonable activity of the customer so that they have the means of

identifying transactions that fall outside the regular pattern of activity. However, the

extent of monitoring will depend on the risk sensitivity of the transaction. APs should

pay special attention to all complex, unusually large transactions and all unusual

patterns which have no apparent economic or visible lawful purpose. APs may

prescribe threshold limits for a particular category of transaction and pay particular

attention to the transactions which exceed these limits. High-risk transactions have

to be subjected to intensified monitoring. Every AP should set key indicators for such

transactions, taking note of the background of the customer, such as the country of

origin, sources of funds, the type of transactions involved and other risk factors. APs

should put in place a system of periodical review of risk categorization of customers

and the need for applying enhanced due diligence measures. Such review of risk

categorisation of customers should be carried out periodically.

APs should exercise ongoing due diligence with respect to the business relationship

with every client and closely examine the transactions in order to ensure that they

are consistent with their knowledge of the client, his business and risk profile and

where necessary, the source of funds. [In view of Government of India Notification

dated June 16, 2010 -Rule 9,sub-rule (1B)]

APs should examine the background and purpose of transactions with persons

(including legal persons and other financial institutions) from jurisdictions included in

FATF Statements and countries that do not or insufficiently apply the FATF

Recommendations. Further, if the transactions have no apparent economic or visible

lawful purpose, the background and purpose of such transactions should, as far as

possible, be examined and written findings together with all the documents should

be retained and made available to the Reserve Bank/ other relevant authorities, on

request.

4.7 Attempted transactions

Where the AP is unable to apply appropriate KYC measures due to non-furnishing of

information and /or non-cooperation by the customer, the AP should not undertake

the transaction Under these circumstances, APs should make a suspicious

transactions report to FIU-IND in relation to the customer, even if the transaction is

not put through.

4.8 Risk Management

a) The Board of Directors of the AP should ensure that an effective KYC

programme is put in place by establishing appropriate procedures and ensuring

effective implementation. It should cover proper management oversight, systems

and controls, segregation of duties, training and other related matters. Responsibility

should be explicitly allocated within the AP for ensuring that the APs’ policies and

procedures are implemented effectively. APs should, in consultation with their

boards, devise procedures for creating risk profiles of their existing and new

customers and apply various anti money laundering measures keeping in view the

risks involved in a transaction or business relationship.

b) APs’ internal audit and compliance functions have an important role in evaluating

and ensuring adherence to the KYC policies and procedures. As a general rule, the

compliance function should provide an independent evaluation of the AP’s own

policies and procedures, including legal and regulatory requirements. APs should

ensure that their audit machinery is staffed adequately with individuals who are well-

versed in such policies and procedures. The concurrent auditors should check all

transactions to verify that they have been undertaken in compliance with the anti-

money laundering guidelines and have been reported whenever required to the

concerned authorities. Compliance on the lapses, if any, recorded by the concurrent

auditors should be put up to the Board. A certificate from the Statutory Auditors on

the compliance with KYC/ AML/ CFT guidelines should be obtained at the time of

preparation of the Annual Report and kept on record.

4.9 Introduction of New Technologies- Pre-paid cards

APs should pay special attention to any money laundering threats that may arise

from new or developing technologies that might favour anonymity and take

measures, to prevent their use in money laundering purposes. Certain AD Category-

I banks are engaged in issuance of Foreign currency denominated pre-paid cards to

travelers going abroad. While issuing these pre-paid cards, it should be ensured by

the AD Category-I banks that all the KYC/ AML/CFT Guidelines are fully complied

with. It is also desirable that, certain APs, who are not eligible to issue such cards

but are involved in marketing these cards on behalf of card issuing banks, as well as

their customers, are also subjected to KYC measures.

4.10 Combating Financing of Terrorism

a) In terms of PML Rules, suspicious transaction should include, inter alia

transactions which give rise to a reasonable ground of suspicion that it may involve

the proceeds of an offence mentioned in the Schedule to the PMLA, regardless of

the value involved. APs should, therefore, develop suitable mechanism through

appropriate policy framework for enhanced monitoring of transactions suspected of

having terrorist links and swift identification of the transactions and making suitable

reports to the Financial Intelligence Unit – India (FIU-IND) on priority.

b) APs are advised to take into account risks arising from the deficiencies in

AML/CFT regime of certain jurisdictions viz. Iran, Uzbekistan, Pakistan,

Turkmenistan, Sao Tome and Principe, Democratic People's Republic of Korea

(DPRK), Bolivia, Cuba, Ethiopia, Kenya, Myanmar, Sri Lanka, Syria and Turkey as

identified in FATF Statement (www.fatf-gafi.org), issued from time to time, while

dealing with individuals or businesses from these jurisdictions. In addition to FATF

Statements circulated by the Reserve Bank of India from time to time (latest as on

June 14, 2013 circulated vide the A.P.(DIR Series) Circular No. 101 dated May 03,

2013 ) APs should also consider using publicly available information for identifying

countries, which do not or insufficiently apply the FATF Recommendations. APs are

accordingly advised to take into account risks arising from the deficiencies in AML/

CFT regime of these countries, while entering into business relationships and

transactions with persons (including legal persons and other financial institutions)

from or in these countries/ jurisdictions and give special attention to these cases.

4.11 Applicability to branches and subsidiaries outside India

The guidelines contained in this circular shall apply to the branches and majority

owned subsidiaries located abroad, especially, in countries which do not or

insufficiently apply the FATF Recommendations, to the extent local laws permit.

When local applicable laws and regulations prohibit implementation of these

guidelines, the same should be brought to the notice of the Reserve Bank. In case

there is a variance in KYC/AML/ CFT standards prescribed by the Reserve Bank

and the host country regulators, branches/overseas subsidiaries of APs are required

to adopt the more stringent regulation of the two.

4.12 Principal Officer

a) APs should appoint a senior management officer to be designated as Principal

Officer. Principal Officer shall be located at the head/corporate office of the AP and

shall be responsible for monitoring and reporting of all transactions and sharing of

information as required under the law. The role and responsibilities of the Principal

Officer should include overseeing and ensuring overall compliance with regulatory

guidelines on KYC/ AML/ CFT issued from time to time and obligations under the

Prevention of Money Laundering Act, 2002, as amended by Prevention of Money

Laundering (Amendment) Act, 2009, rules and regulations made there under, as

amended from time to time. The Principal Officer should also be responsible for

developing appropriate compliance management arrangements across the full

range of AML/CFT areas (e.g. CDD, record keeping, etc.). He will maintain close

liaison with enforcement agencies, APs and any other institution which are involved

in the fight against money laundering and combating financing of terrorism. With a

view to enable the Principal Officer to discharge his responsibilities, it is advised that

that the Principal Officer and other appropriate staff should have timely access to

customer identification data and other CDD information, transaction records and

other relevant information. Further, APs should ensure that the Principal Officer is

able to act independently and report directly to the senior management or to the

Board of Directors.

b) The Principal Officer will be responsible for timely submission of CTR and STR to

the FIU-IND.

4.13 Maintenance of records of transactions/Information to be

preserved/Maintenance and preservation of records/Cash and Suspicious

transactions reporting to Financial Intelligence Unit- India (FIU-IND)

Section 12 of the Prevention of Money Laundering Act (PMLA), 2002, as amended

by Prevention of Money Laundering (Amendment) Act, 2009, casts certain

obligations on the APs in regard to preservation and reporting of transaction

information. APs are, therefore, advised to go through the provisions of Prevention

of Money Laundering Act, (PMLA), 2002, as amended by Prevention of Money

Laundering (Amendment) Act, 2009 and the Rules notified there under and take all

steps considered necessary to ensure compliance with the requirements of Section

12 of the Act ibid.

(i) Maintenance of records of transactions

APs should introduce a system of maintaining proper record of transactions

prescribed under Rule 3, as mentioned below:

a) all cash transactions of the value of more than Rupees Ten Lakh or its

equivalent in foreign currency;

b) all series of cash transactions integrally connected to each other which have

been valued below Rupees Ten Lakh or its equivalent in foreign currency where

such series of transactions have taken place within a month and the aggregate value

of such transactions exceeds Rupees Ten Lakh;

c) all transactions involving receipts by non-profit organizations of value

more than Rupees ten lakh or its equivalent in foreign currency [ In view of

Government of India Notification dated November 12, 2009- Rule 3, sub-

rule (1) clause (BA) of PML Rules] ;

d) all cash transactions where forged or counterfeit currency notes or bank

notes have been used as genuine and where any forgery of a valuable

security or a document has taken place facilitating the transaction; and

e) all suspicious transactions whether or not made in cash and by way of as

mentioned in the Rules.

(ii) Information to be preserved

APs are required to maintain all necessary information in respect of transactions

referred to in Rule 3 to permit reconstruction of individual transactions including the

following information:

a) the nature of the transactions;

b) the amount of the transaction and the currency in which it was denominated;

c) the date on which the transaction was conducted; and

d) the parties to the transaction

(iii) Maintenance and Preservation of record

a) APs are required to maintain the records containing information of all

transactions including the records of transactions detailed in Rule 3 above . APs

should take appropriate steps to evolve a system for proper maintenance and

preservation of transaction information in a manner that allows data to be retrieved

easily and quickly whenever required or when requested by the competent

authorities. Further, APs should maintain for at least ten years from the date of

transaction between the AP and the client, all necessary records of transactions,

both with residents and non-residents, which will permit reconstruction of individual

transactions (including the amounts and types of currency involved, if any) so as to

provide, if necessary, evidence for prosecution of persons involved in criminal

activity.

b) APs should ensure that records pertaining to the identification of the customer

and his address (e.g. copies of documents like passport, driving license, PAN card,

voter identity card issued by the Election Commission, utility bills etc.) obtained while

undertaking the transaction and during the course of business relationship, are

properly preserved for at least ten years from the date of cessation of the

transaction/ business relationship. The identification records and transaction data

should be made available to the competent authorities upon request.

c) In paragraph 4.6 of this Circular, APs have been advised to pay special

attention to all complex, unusual large transactions and all unusual patterns of

transactions, which have no apparent economic or visible lawful purpose. It is further

clarified that the background including all documents/office records/memoranda

pertaining to such transactions and purpose thereof should, as far as possible, be

examined and the findings at branch as well as Principal Officer’s level should be

properly recorded. Such records and related documents should be made available to

help auditors in their day-to-day work relating to scrutiny of transactions and also to

Reserve Bank/other relevant authorities. These records are required to be preserved

for ten years as is required under Prevention of Money Laundering Act, (PMLA),

2002, as amended by Prevention of Money Laundering (Amendment) Act, 2009 and

Prevention of Money-Laundering (Maintenance of Records of the Nature and Value

of Transactions, the Procedure and Manner of Maintaining and Time for Furnishing

Information and Verification and Maintenance of Records of the Identity of the

Clients of the Banking Companies, Financial Institutions and Intermediaries) Rules,

2005 as amended from time to time.

(iv) Reporting to Financial Intelligence Unit – India

a) In terms of the PML rules, APs are required to report information relating to

cash and suspicious transactions to the Director, Financial Intelligence Unit-India

(FIU-IND) in respect of transactions referred to in Rule 3 at the following address:

The Director,

Financial Intelligence Unit-India (FIU-IND)

6th Floor, Hotel Samrat,

Chanakyapuri, New Delhi-110021.

Website - http://fiuindia.gov.in/

b) APs should carefully go through all the reporting formats. There are

altogether four reporting formats, as detailed in PART C of Annex-I, viz. i) Cash

Transactions Report (CTR); ii) Electronic File Structure-CTR; iii) Suspicious

Transactions Report (STR); iv) Electronic File Structure-STR. The reporting formats

contain detailed guidelines on the compilation and manner/procedure of submission

of the reports to FIU-IND. It would be necessary for APs to initiate urgent steps to

ensure electronic filing of all types of reports to FIU-IND. The related hardware and

technical requirement for preparing reports in an electronic format, the related data

files and data structures thereof are furnished in the instructions part of the formats

concerned.

c) In terms of instructions contained in paragraph 4.3(b) of this Circular, APs are

required to prepare a profile for each customer based on risk categorisation. Further,

vide paragraph 4.6, the need for periodical review of risk categorisation has been

emphasized. It is, therefore, reiterated that APs, as a part of transaction monitoring

mechanism, are required to put in place an appropriate software application to throw

alerts when the transactions are inconsistent with risk categorisation and updated

profile of customers. It is needless to add that a robust software throwing alerts is

essential for effective identification and reporting of suspicious transactions.

4.14 Cash and Suspicious Transaction Reports

A) Cash Transaction Report ( CTR )

While detailed instructions for filing all types of reports are given in the instructions

part of the related formats, APs should scrupulously adhere to the following:

(i) The Cash Transaction Report (CTR) for each month should be submitted to

the FIU-IND by 15th of the succeeding month. Cash transaction reporting by

branches to their controlling offices should, therefore, invariably be submitted on a

monthly basis and APs should ensure to submit CTR for every month to FIU-IND

within the prescribed time schedule.

(ii) While filing CTR, details of individual transactions below Rupees 50,000 need

not be furnished.

(iii) CTR should contain only the transactions carried out by the AP on behalf of

their customers excluding transactions between the internal accounts of the AP.

(iv) A cash transaction report for the AP as a whole should be compiled by the

Principal Officer of the AP every month in physical form as per the format specified.

The report should be signed by the Principal Officer and submitted to the FIU-India.

(v) In case of Cash Transaction Reports (CTR) compiled centrally by APs for the

branches at their central data centre level, APs may generate centralised Cash

Transaction Reports (CTR) in respect of branches under central computerized

environment at one point for onward transmission to FIU-IND, provided:

a) The CTR is generated in the format prescribed by Reserve Bank in

Para 4.13(iv)(b) of this Circular;

b) A copy of the monthly CTR submitted on its behalf to the FIU-India is

available at the concerned branch for production to auditors/inspectors,

when asked for.

c) The instruction on ‘Maintenance of records of transactions’;

‘Information to be preserved’ and ‘Maintenance and Preservation of

records’ as contained above in this circular at Para 4.13 (i), (ii) and (iii)

respectively are scrupulously followed by the branch.

However, in respect of branches not under central computerized environment, the

monthly CTR should continue to be compiled and forwarded by the branch to the

Principal Officer for onward transmission to the FIU-IND.

B) Suspicious Transaction Reports (STR)

(i) While determining suspicious transactions, APs should be guided by

definition of suspicious transaction contained in PML Rules as amended from time to

time.

(ii) It is likely that in some cases transactions are abandoned/aborted by

customers on being asked to give some details or to provide documents. It is

clarified that APs should report all such attempted transactions in STRs, even if not

completed by customers, irrespective of the amount of the transaction.

(iii) APs should make STRs if they have reasonable ground to believe that the

transaction, including an attempted transaction, involves proceeds of crime

irrespective of the amount of transaction and/or the threshold limit envisaged for

predicate offences in part B of Schedule of Prevention of Money Laundering Act,

(PMLA), 2002, as amended by Prevention of Money Laundering (Amendment) Act,

2009 .

(iv) The Suspicious Transaction Report (STR) should be furnished within 7 days

of arriving at a conclusion that any transaction, including an attempted transaction,

whether cash or non-cash, or a series of transactions integrally connected are of

suspicious nature. The Principal Officer should record his reasons for treating any

transaction or a series of transactions as suspicious. It should be ensured that there

is no undue delay in arriving at such a conclusion once a suspicious transaction

report is received from a branch or any other office. Such report should be made

available to the competent authorities on request.

(v) In the context of creating KYC/ AML awareness among the staff and for

generating alerts for suspicious transactions, APs may consider the following

indicative list of suspicious activities.

Some possible suspicious activity indicators are given below:

• Customer is reluctant to provide details / documents on frivolous grounds.

• The transaction is undertaken by one or more intermediaries to protect the

identity of the beneficiary or hide their involvement.

• Size and frequency of transactions is high considering the normal business of

the customer.

• Change in the pattern of transactions.

The above list is only indicative and not exhaustive.

(vi) APs should not put any restrictions on transactions where an STR has been

made. Moreover, it should be ensured that employees of APs shall keep the fact of

furnishing such information as strictly confidential and there is no tipping off to the

customer at any level.

4.15 Customer Education/Employees’ Training/Employees’ Hiring

a) Customer Education

Implementation of KYC procedures requires APs to demand certain information from

customers which may be of personal nature or which has hitherto never been called

for. This can sometimes lead to a lot of questioning by the customer as to the motive

and purpose of collecting such information. There is, therefore, a need for APs to

prepare specific literature/ pamphlets etc. so as to educate the customer of the

objectives of the KYC programme. The front desk staff needs to be specially trained

to handle such situations while dealing with customers.

b) Employees’ Training

APs must have an ongoing employee training programme so that the members of

the staff are adequately trained to be aware of the policies and procedures relating

to prevention of money laundering, provisions of the PMLA and the need to monitor

all transactions to ensure that no suspicious activity is being undertaken under the

guise of money changing. Training requirements should have different focuses for

frontline staff, compliance staff and staff dealing with new customers. It is crucial that

all those concerned fully understand the rationale behind the KYC policies and

implement them consistently. The steps to be taken when the staff come across any

suspicious transactions (such as asking questions about the source of funds,

checking the identification documents carefully, reporting immediately to the

Principal Officer, etc.) should be carefully formulated by the AP and suitable

procedure laid down. The APs should have an ongoing training programme for

consistent implementation of the AML measures.

c) Hiring of Employees

It may be appreciated that KYC norms/AML standards/CFT measures have been

prescribed to ensure that criminals are not allowed to misuse the system of APs. It

would, therefore, be necessary that adequate screening mechanism is put in place

by APs as an integral part of their recruitment/hiring process of personnel to ensure

high standards.

Note:- The Government of India had constituted a National Money Laundering /

Financing of Terror Risk Assessment Committee to assess money laundering and terror

financing risks, a national AML/CFT strategy and institutional framework for

AML/CFT in India. Assessment of risk of Money Laundering /Financing of Terrorism

helps both the competent authorities and the regulated entities in taking necessary steps

for combating ML/FT adopting a risk-based approach. This helps in judicious and

efficient allocation of resources and makes the AML/CFT regime more robust. The

Committee has made recommendations regarding adoption of a risk-based approach,

assessment of risk and putting in place a system which would use that assessment to

take steps to effectively counter ML/FT. The recommendations of the Committee have

since been accepted by the Government of India and need to be implemented.

Accordingly, APs should take steps to identify and assess their ML/FT risk for

customers, countries and geographical areas as also for products/ services/

transactions/delivery channels, in addition to what has been prescribed in the

paragraph 4.3 and 4.8 above. APs should have policies, controls and procedures, duly

approved by their boards, in place to effectively manage and mitigate their risk

adopting a risk-based approach as discussed above. As a corollary, APs would be

required to adopt enhanced measures for products, services and customers with a

medium or high risk rating. APs may design risk parameters according to their

activities for risk based transaction monitoring, which will help them in their own risk

assessment.

PART B

Customer Identification Procedure

Features to be verified and documents that may be obtained from customers

Features Documents

Transactions with individuals

- Legal name and any other names

used

- Correct permanent address

(i) Passport (ii) PAN card (iii) Voter’s

Identity Card (iv) Driving licence

(v) Identity card (subject to the AP’s

satisfaction) (vi) Letter from a recognized

public authority or public servant verifying

the identity and residence of the customer

to the satisfaction of the AP

(i) Telephone bill (ii) Bank account

statement (iii) Letter from any recognized

public authority (iv) Electricity bill (v) Ration

card (vi) Letter from employer (subject to

satisfaction of the AP)

(any one of the documents, which provides

customer information to the satisfaction of

the AP will suffice )

Note :- (1) If the address on the document

submitted for identity proof by the

prospective customer is same as that

declared by him/her, the document may be

accepted as a valid proof of both identity

and address. If the address indicated on

the document submitted for identity proof

differs from the current address declared by

the customer, a separate proof of address

should be obtained.

(2) In case of foreign tourists, copies of

passport containing identification

particulars and address, may be accepted

as documentary proof for both identification

as well as address. Further, a copy of the

visa of non-residents, duly stamped by

Indian Immigration authorities may also be

obtained and kept on record. However,

where neither passports contain any

address nor foreign tourists are able to

produce any address proof, APs may

obtain and keep on record, a copy of

passport and visa duly stamped by the

Indian Immigration authorities and a

declaration duly signed from foreign tourists

regarding the permanent address.

Establishment of business

relationship- corporates

- Name of the corporate

- Principal place of business

- Mailing address of the corporate

- Telephone/Fax Number

One certified copy each of the following

documents.

(i) Certificate of incorporation

(ii) Memorandum & Articles of Association

(iii) Resolution of the Board of Directors for

undertaking forex transactions with the AP

(iv) Power of Attorney granted to its

managers, officers or employees to

conduct forex transactions on behalf of the

corporate and their identification.

(v) PAN Card

(vi) Telephone Bill

Establishment of business

relationship- partnership firms

-Legal name

-Address

-Names of all partners and their

addresses

-Telephone/ Fax numbers of the firm

and partners

One certified copy each of the following.

(i) Registration certificate, if registered

(ii) Partnership deed

(iii) Power of Attorney granted to a partner

or an employee of the firm to transact

business on its behalf

(iv) Any officially valid document identifying

the partners and the persons holding the

Power of Attorney, their addresses and

their signatures.

(v) Telephone bill in the name of firm/

partners.

Establishment of business

relationship- trusts and

foundations

-Names of trustees, settlers,

beneficiaries and signatories

-Names and addresses of the

founder, the managers/ directors

and the beneficiaries

-Telephone/ Fax numbers

One certified copy of each of the following.

(i) Registration certificate, if registered

(ii) Power of Attorney granted to transact

business on its behalf

(iii) Any officially valid document to identify

the trustees, settlers, beneficiaries and

those holding Power of Attorney, founders/

managers/ directors and their addresses

(iv) Resolution of the managing body of the

foundation/ association

(v) Telephone bill

PART C

List of various reports and their formats

1. Cash Transaction Report (CTR)

2. Electronic File Structure- CTR

3. Suspicious Transaction Report (STR)

4. Electronic File Structure-STR

For the formats of the above reports, please refer to the attachments after (F-

Part-III) [Annex to A.P. (DIR Series) Circular No.17 {A.P. (FL/RL Series) Circular

No. 4 } dated November 27, 2009 ]. APs may also visit the website of the FIU-IND,

i.e., http://fiuindia.gov.in

Note: FIU-IND have now advised that the 'go-live' date is October 20, 2012 and that

Authorised Persons, who are Indian agents under MTSS may discontinue

submission of reports in CD format after October 20, 2012, using only FINnet

gateway for uploading of reports in the new XML reporting format. Any report in CD

format received after October 20, 2012 will not be treated as a valid submission by

FIU-IND.

Annex-II

[See SECTION I, Paragraph 2 (ii)]

Application Form for FFMC licence under section 10(1) of FEMA, 1999

1. Full name of the applicant

2. Address in full

3. Name of location/s to where the

applicant proposes to conduct Money

Changing Business (Please enclose

copies of the Licences under Shops and

Establishment Act)

4. (a) Date of establishment of the

company

(b) Name/s and address/es of the

Directors of the company

5. Copy of the Certificate of Registration

(Certificate of Incorporation & Certificate

of Commencement of Business) of the

company

6. Copy of Memorandum of Association

together with a letter indicating the

clause which provides for taking up

money changer's business.

7. Confidential report from the applicant's

bank/s in CIR format.

8. Net Owned Funds

A copy of the latest Audited Balance

Sheet of the applicant company

together with a certificate from their

Statutory Auditors certifying their Net

Owned Funds as on the date of

application and calculation thereof is to

be enclosed.

Rs.

9. Declaration to the effect that the

company or any of its directors are not

under investigation/adjudication of any

law enforcing agencies, such as

DoE/DRI and also that no criminal

proceedings filed by Crime Investigation

Agencies are pending against the

company or any of its directors.

10. Undertaking to post competent staff to

handle the money changer's business.

11. Name, designation of persons

authorised to deal in foreign exchange.

13. A brief write up of the activities of the

applicant/nature of business.

14. Whether the applicant had applied

earlier for FFMC / RMC licence. If so,

the particulars thereof.

15. Any other particulars / special reasons

the applicant may wish to state in

support of the application.

We undertake that in the conduct of money changing business, we shall at all time

abide by the rules/regulations/orders/directions/notifications which Reserve Bank

may from time to time issue in this behalf.

Place:

Date: Signature of the applicant with seal

Enclosures:

1. Bankers' confidential Report

2. Attested copies of audited accounts for the past 3 years.

Note: Single branch FFMCs shall have Net Owned Funds not less than Rs.25 lakhs

while FFMCs intending to operate through more than one branch will have to

maintain Net Owned Funds not less than `.50 lakhs.

Annex-III

[See SECTION III, Paragraph 4]

Form RMC-F

1. Name of the AD/ FFMC

2. Name and address of the franchisee Details of locations

(i)

(ii)

(iii)

Etc.

3. Existing business activity of the franchisee

4. Net Owned Funds

5. Shop & Establishment/ other applicable municipal

certification in favour of the franchisee

6. Conduct certificate of the franchisee from the local

police authorities. (certified copy of Memorandum and

Articles of Association and Certificate of Incorporation

in respect of incorporated entities)

7. Declaration regarding past criminal case, if any, cases

initiated/ pending against the franchisee or its

directors/ partners by any law enforcing agency, if any

8. PAN Numbers of the franchisee and its directors/

partners

9. Arrangements in place to surrender the foreign

exchange

10. AML, Reporting, Audit and Inspection arrangements

We declare 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/prevailing RBI regulations regarding money changing.

Place:-

Date :- Authorized Signatory

Annex-IV

[See SECTION V , Paragraph 14 (i) (a)]

FLM 1

Daily Summary and Balance Book

(Foreign Currency notes/coins)

Date:_________________

Pound

Sterling U.S.

Dollar Euro Yen Other

(Pl. specify)

I. Opening Balance

II. Add: Purchases

(i) Purchases from the public

(ii) Purchases from

authorized dealers, money-

changers and franchisees

(iii)Import from abroad for

replenishment of stock

Total purchases

Total (I + II)

III. Less Sales:

(i) Sales to public

(ii) Sales to authorized dealers/

full-fledged money changers

(iii) Despatched abroad for

realization

Total Sales

IV. Closing Balance

(I + II - III)

N.B: In cases where forged notes etc. are detected, the closing balance may be

adjusted with remarks indicating the amount and the reasons for writing off.

Date:

Name:__________________________

Designation:_____________________

Annex-V

[See SECTION V , Paragraph 14 (i) (b)]

FLM 2

Daily Summary and Balance Book

(Travellers’ cheques)

Date:_______________

Pound

Sterling U.S.

Dollar Euro Yen Other

(Pl. specify)

I. Opening Balance

II. Add: 1) Purchases from the

public

2) Purchases from

others (including fresh

stock received)

Total (I + II)

III. Less :1) Sales to public

2)Surrender to

ADs/FFMCs

3) Exports

IV. Closing Balance

(I + II - III)

Pre-paid cards sold No. Amount.

Date:

Name:__________________________

Designation:______________________

_______________________________________________________________

Note:- Stock register of blank travellers’ cheques/ smart cards in various

denominations obtained from authorized dealers/ TC issuers/ other agencies

for sale to travellers under Basic Travel Quota or for business visit should be

maintained and balanced on a daily basis.

Annex-VI

[See SECTION V , Paragraph 14 (i) (c)]

FLM 3

Date Sr.

No. Name of

the

tenderer

Nationality

Full

Address

Details of

Identification

documents

Pound

Sterling U.S.

Dollar Euro

1. 2. 3. 4. 5. 6. 7. 8.

Japanese Yen Others

(Pl.

specify)

Rate Rupee

Equivalent Encashment

certificate

No. and date

Remarks

9. 10. 11. 12. 13. 14.

NOTES:(1) If the money-changer is dealing in a large number of currencies, two or more

registers currency- wise or otherwise may be maintained, as convenient.

(2) If travellers cheques are purchased, the prefix, "TC" may be indicated in the

amount column.

(3) If more than one currency is purchased from the same tenderer, separate

entries may be made.

Date:

Name:__________________________

Designation:____________________

Annex-VII

[See SECTION V , Paragraph 14 (i) (d)]

FLM 4

Authorised dealers and authorised money-changers

Date Sr.

No. Name and

address of the

authorised

dealer/

authorised

money-

changers from

whom

purchased

Currency Amount Rate Rupee

equivalent Remarks

1. 2. 3. 4. 5. 6. 7. 8.

Date:

Name:_______________________________

Designation:__________________________

Annex-VIII

[See SECTION V , Paragraph 14 (i) (e)]

FLM 5

Date Sr.

Name of

the

tenderer

Nationa

lity &

Full

Addres

Details of

Identification

Document

Name of the

sponsoring

Organisation

Cou

ntry/

ies

visit

Purpose

of visit Duration

of stay

abroad

(No. of

days)

1. 2. 3. 4. 5. 6. 7. 8. 9.

Particulars of foreign

currency notes/coins/

TCs/pre-paid cards

Rate Rup

equi

vale

Commis

sion

charged,

if any

Total

amount

received

Cash

Memo

No. &

Date

Remarks

Name of

currency Amount

Notes/

coins

Amoun

in TCs/

cards

Cas

10. 11. 12. 13. 14. 15. 16. 1

7. 18. 19.

NOTES:(1) If the money-changer is dealing in a large number of currencies, two or more

registers currency-wise or otherwise may be maintained, as convenient.

(2) If more than one currency is sold, separate entries may be made

(3) The columns 6 and 9 to be filled in case of release of exchange for business

purpose

Date:

Name:_________________________

Designation:__________________

Annex-IX

[See SECTION V , Paragraph 14 (i) (f)]

FLM 6

fledged money changers/overseas banks

Date Sr.

No. Name and

address of

the

authorised

dealer/full

fledged

Money

changer/

overseas

bank to

whom

sold

Currency Amount Rate Rupee

Equivalent

received

Remarks

1. 2. 3. 4. 5. 6. 7. 8.

Note :- Necessary entries in the register should be made before the funds are

taken out of the premises, not after delivery of funds.

Date:

Name:_______________________________

Designation:______________________

Annex-X

[See SECTION V , Paragraph 14 (i) (g)]

FLM 7

money changers/exported

Date Sr.

No. Name and

address of the

Authorised

dealer/authoris

money

changer/TC

issuer/authoris

ed agent to

whom sold

Travelle

cheque

No.(s)

Amount Rate Rupee

Equivalent

received

Remarks

1. 2. 3. 4. 5. 6. 7. 8.

Date:

Name:__________________________

Designation:______________________

Annex- XI

[See SECTION V , Paragraph 15 (i)]

FLM 8

(For FFMCs)

Summary statement of purchases and sales of foreign currency notes during

the month of __________20

Name and address RBI Licence No.________

of money changer

USD GBP EURO JPY Others

(Specify)

A. Opening balance

Purchases of foreign currency

notes from

(a) Public

(b) RMCs/FFMCs/ADs including

imports.

B. Total Purchases (a) + (b) + (c)

Sales of foreign currency notes

under

(a) BTQ

(b) Business Visits

including exports

C. Total Sales [ (a) + (b) + (c) ]

Closing balance (A+B - C)

We hereby certify that the statement is a true and correct account of all transactions

undertaken during the month in accordance with the Foreign Exchange Regulations.

Place: (Signature of Authorized Official)

Date : Stamp

Name:________________________

Designation ____________________

FLM 8

(For ADs Category-II)

Summary statement of purchases and sales of foreign currency notes during

the month of __________20

Name and address RBI Licence No.________

of the Authorised

Dealer Category-II____________________

USD GBP EURO JPY Others

(Specify)

A. Opening balance

Purchases of foreign currency

notes from

(a) Public

(b) RMCs/FFMCs/ADs including

imports.

B. Total Purchases (a) + (b) + (c)

Sales of foreign currency notes

under( with purpose codes)

(a) (i) BTQ /(ii) Private Visits

(S0302)

(b) (i) Business Visits/(ii)

Business Travel (S0301)

/ travel agents to overseas

agents / principals / hotels(

S0306)

(d) Film shooting(S1101)

(e) Medical Treatment

abroad(S0304)

(f) Disbursement of crew

wages(S1401)

(g) Overseas Education(S0305)

(h) (i) Fee for participation in

global conferences and

specialized training / (ii)

Remittance for participation in

international events /

competitions (towards training,

sponsorship and prize money)/

(iii) Remittance under educational

tie up arrangements with

universities abroad/(iv)

Remittance towards fees for

examinations held in India and

abroad and additional score

sheets for GRE, TOEFL etc./ (v)

Employment and processing,

assessment fees for overseas job

applications/(vi) Skills / credential

assessment fees for intending

migrants/(vii) Visa fees /(viii)

Processing fees for registration of

documents as required by the

Portuguese / other Governments/

(ix) Registration / Subscription /

Membership fees to International

Organizations (S1102)

(h) Emigration Fees (S1202)

(i) Emigration Consultancy Fees

(S1006)

(k) Sales to other FFMCs/ADs

including exports

C. Total Sales [ (a) + (b) + (c) + (d)

+ (e) + (f) + (g) + (h )+ (i) + (j)+ (k) ]

Closing balance (A+B - C)

We hereby certify that the statement is a true and correct account of all transactions

undertaken during the month in accordance with the Foreign Exchange Regulations.

Place:

(Signature of Authorised Official)

Date : Stamp

Name: __________________________

Designation : _____________________

Annex- XII

[See SECTION V, Paragraph 15 (ii)]

Statement of Purchase transactions of USD 10,000 and above for the month of

_______

Date of transaction Name and address of the

person surrendering the

foreign currency

Amount

Currency/ TCs

Signature of Authorized Official

with Seal

Annex- XIII

[See SECTION V , Paragraph 15 (iii)]

Statement showing summation of Foreign Currency Account opened in India out of

export proceeds of Foreign Currency Notes/ encashed Travellers' Cheques for the

quarter ended ___________ (Value in USD)

Opening

Balance

in the

Account

Value of

foreign

currency

notes/

encashed

TCs

exported

Amount

realized

in foreign

currency

Column 3

amount

credited

Foreign

Currency

Account

Amount

remitted to

TC issuing

organization

from TCs

sold/

Debited for

purchase of

foreign

currency

notes from

ADs

Maximum

balance

maintained

on any day

in the

foreign

currency

account

during the

quarter

Closing

balance

in the

Foreign

Currency

Account

Remarks

1. 2. 3. 4. 5. 6. 7. 8.

Certified that the above particulars are correct as per our records.

Name and address of the AD Category - I

Signature of Authorized Official of

the AD Category - I with Seal

Annex- XIV

[See SECTION V, Paragraph 15 (iv)]

Statement of the amount of foreign currency written off during the financial year

ended ______________

Name of the FFMC/ AD Category-II :

A. Total amount written-off (in equivalent USD) :-

B. Details of the amount written-off :-

Sr. No. Date of write-

off Amount of

foreign

currency (with

currency-wise

break-up)

On account of

* Approved by

FFMC/AD

Category-II/

Reserve Bank

1. 2. 3. 4. 5.

Total :

* Please indicate whether on account of being found to be fake or forged/ theft/

lost in transit, etc.

Signature of Authorized Official

with Seal

Appendix

List of A.P.(DIR Series) Circulars which have been consolidated in the Master

Circular on Memorandum of Instructions governing money changing activities

Sl. No. A.P.(DIR Series) Circular Date

1. A.P. (DIR Series) Circular No. 43 [ A.P.(FL

Series) Circular No. 1] November 12, 2002

2. A.P. (DIR Series) Circular No.57[ A.P.(FL/

RL Series) Circular No. 04] March 9, 2009

3. A.P. (DIR Series) Circular No.06 [A.P.(FL/

RL Series) Circular No. 01] August 3, 2009

4. A.P. (DIR Series) Circular No. 17 [ A.P.(FL

Series) Circular No. 04] November 27, 2009

5 A.P.(DIR Series) Circular No.18 [ A.P.(FL

Series ) Circular No. 01] November 25, 2010

6 A.P. (DIR Series) Circular No.20 [A.P. (FL/RL

Series) Circular No.03] November 30, 2010

7 A.P. (DIR Series) Circular No.24

[A.P. (FL/RL Series) Circular No.05] December 13, 2010

8 A.P. (DIR Series) Circular No.25

[A.P. (FL/RL Series) Circular No.06] December 22, 2010

9 A.P. (DIR Series) Circular No.27

[A.P. (FL/RL Series) Circular No.08] December 22, 2010

10 A.P. (DIR Series) Circular No.40

[A.P. (FL/RL Series) Circular No.10] January 25, 2011

11 A.P. (DIR Series) Circular No.49

[A.P. (FL/RL Series) Circular No.11] April 06, 2011

12 A.P. (DIR Series) Circular No.51

[A.P. (FL/RL Series) Circular No.13] April 06, 2011

13 A.P. (DIR Series) Circular No.61 May 16, 2011

14 A.P. (DIR Series) Circular No.63 May 20, 2011

15 A.P. (DIR Series) Circular No.65 May 20, 2011

16 A.P.(DIR Series) Circular No.21 September 19, 2011

17 A.P.(DIR Series) Circular No.23 September 19, 2011

18 A.P.(DIR Series) Circular No.31 October 03, 2011

19 A.P.(DIR Series) Circular No.33 October 12, 2011

20 A.P.(DIR Series) Circular No.38 October 25, 2011

21 A.P.(DIR Series) Circular No.41 November 01, 2011

22 A.P.(DIR Series) Circular No.60 December 22, 2011

23 A.P.(DIR Series) Circular No.71 January 30, 2012

24 A.P.(DIR Series) Circular No.77 February 15, 2012

25 A.P.(DIR Series) Circular No.86 February 29, 2012

26 A.P.(DIR Series) Circular No.104 April 04, 2012

27 A.P.(DIR Series) Circular No.107 April 17, 2012

28 A.P.(DIR Series) Circular No.109 April 18, 2012

29 A.P.(DIR Series) Circular No.17 August 23, 2012

30 A.P.(DIR Series) Circular No.33 September 24, 2012

31 A.P.(DIR Series) Circular No.42 October 12, 2012

32 A.P.(DIR Series) Circular No.50 November 07, 2012

33 A.P.(DIR Series) Circular No.51 November 15, 2012

34 A.P.(DIR Series) Circular No.68 January 02, 2013

35 A.P.(DIR Series) Circular No.70 January 10, 2013

36 A.P.(DIR Series) Circular No.72 January 10, 2013

37 A.P.(DIR Series) Circular No.84 February 22, 2013

38 A.P.(DIR Series) Circular No.96 April 5, 2013

39 A.P.(DIR Series) Circular No.101 May 3, 2013

FOREIGN EXCHANGE DEPARTMENT Master Circular On Memorandum Of Instructions Governing Money Changing Activities

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