In March of 2016, many businesses in South India were shook at the news of RBI cancelling FFMC licenses of 201 forex money changers. Why did that happen? And what followed? This blog is a story that speculates what might have happened. And what you can do to prevent the same from happening to you?
2016 was a simple year. People were just beginning to understand the intricacies of certain businesses. Entrepreneurs were riding the wave of the Start-up India initiative. And most importantly, the tourism sector was on the boom. It was a time when people were allowed to go outside, and that too without the mask.
The explosion of the tourism sector created several forex exchange aspirants: those who aspired to provide money changing services. As a result, many were lining up at their regional RBI offices to submit their RBI license applications. That’s when something unexpected happened.
In one fell swoop, RBI snatched away the FFMC licenses from 201 tour operators. These were Full Fledged money changers that provided forex exchange services for tourists in Chennai. And no one was spared during this incursion. Whether you were a big money changer or a small forex exchange service provider, RBI’s wrath fell on all.
It’s been five years since that event. And the reasons given by RBI were quite generic if there were any. In 2021, we speculate an answer to this as accurately as possible.
Reason Number 1: Not maintaining the net worth
One requirement that you have to fulfil is maintain the net worth of your money changing company. For a single branch, you’re required to maintain a net worth of INR 25 lakh. For multiple branches, the net-worth requirement is INR 50 Lakh. During a comment that might as well have been a “no comment”, an RBI official said that many operators weren’t maintaining their net worth.
Reason Number 2: Inactive businesses
Not all the FFMC license that were cancelled in Chennai were active. Some had been laying dormant for a long time. In fact, many of them had not even commenced the operations. In such cases, RBI could’ve cancelled their FFMC license to prevent their books from getting crowded with junk information.
Reason Number 3: Improper book keeping
The annual compliance requirement to maintain an FFMC business is quite nuanced, and technical. You have to take into account the date, the exchange rate, and everything else to make sure that the details you provide to the RBI can’t be questioned later. we believe that some FFMC weren’t doing the proper book keeping needed to maintain their money exchange business.
Reason Number 4: Mismatch in conversion rates
Those with FFMC license exchange currency at an exchange rate during that time. RBI expects the FFMCs to exchange currency based on the exact rate, down to multiple decimal places. Some of those who had their license cancelled might have been the ones who had failed to keep up with the accurate exchange rates.
Reason 5: Banks providing Forex trading services
there are many banks that provide full fledged money changing services, and that too at every branch. Thus, another reason that RBI cancelled those FFMC licenses might that it wanted to promote the services of these banks instead of supporting small tour operators.
Conclusion
It’s said that RBI often runs a clean-up – cancelling FFMC licenses in bulk. If you want to prevent the same from happening to you, you must talk to our FFMC license consultant. We would have all the answers you seek to prevent any cancellation of any license that would make you appear weak.
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Why did RBI cancel FFMC license for 201 forex money changers in 2016? This blog tries to speculate the answer and gives you a solution to prevent the same from happening to you.