RBI Master Direction on Money Changing Activities (Updated up to November 28, 2025)

1. Introduction

The Master Direction – Money Changing Activities, issued by the Reserve Bank of India (RBI) under Sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (FEMA), provides a comprehensive and consolidated regulatory framework governing money changing operations in India.

Originally issued on January 1, 2016, the Master Direction has undergone several amendments to align with evolving regulatory expectations, enhanced AML/CFT standards, digital reporting mechanisms, and supervisory experience. The latest update dated November 28, 2025 significantly strengthens governance, compliance, and operational discipline for all Authorised Persons dealing in foreign exchange.

The Direction applies to banks, non-bank entities, Full Fledged Money Changers (FFMCs), Authorised Dealers Category-II, and their franchisees, and is issued without prejudice to compliance under other applicable laws.

2. Regulatory Framework and Authorised Persons

Under Section 10(1) of FEMA, RBI authorises entities to deal in foreign exchange as Authorised Persons (APs). These are categorised as follows:

(a) Authorised Dealer (AD) Category–I

Scheduled commercial banks authorised to undertake:

• all permissible current account transactions, and
• capital account transactions as notified by RBI.

(b) Authorised Dealer (AD) Category–II

Entities authorised to carry out:

• specified non-trade related current account transactions,
• all activities permitted to FFMCs, and
• additional activities approved by RBI.

This category includes upgraded FFMCs, select RRBs, UCBs and other entities.

(c) Authorised Dealer (AD) Category–III

Entities authorised to undertake limited foreign exchange transactions incidental to their business.

(d) Full Fledged Money Changers (FFMCs)

Companies authorised to:

• purchase foreign exchange from residents and non-residents, and
• sell foreign exchange only for private and business travel purposes.

3. Licensing and Eligibility for FFMCs

3.1 Entry Norms

To be eligible for an FFMC licence:

• the applicant must be a company registered under the Companies Act, 1956/ 2013 (or Sikkim Act), and
• must maintain minimum Net Owned Funds (NOF) of:
  • Rs. 25 lakh for a single-branch FFMC, and
  • Rs. 50 lakh for multiple-branch FFMCs.

3.2 Application and Approval

Applications are submitted electronically through the APConnect portal to the concerned RBI Regional Office and must be supported by:

• incorporation documents,
• audited financial statements and NOF certification,
• banker’s confidential report,
• declarations on enforcement actions, and
• confirmation of readiness to implement KYC/AML/CFT policies.

Licences are granted on a selective basis, subject to:

• “fit and proper” assessment of the entity and its directors,
• clearance by an Empowered Committee, and
• RBI’s final discretion.

4. Branches, Airport Counters and Temporary Facilities

FFMCs and non-bank AD Category-II entities must obtain prior RBI approval to:

• open additional branches,
• operate foreign exchange counters at international airports, or
• set up temporary money changing facilities during special events.

RBI encourages branch expansion in tourist-centric and remote areas, while prescribing strict controls over:

• location of airport counters,
• types of transactions permitted, and
• issuance of Encashment Certificates.

5. Franchisee Framework

RBI permits AD Category-I banks, AD Category-II entities and FFMCs to appoint franchisees for restricted money changing activities, limited to:

• purchase of foreign currency notes, coins and travellers’ cheques, and
• conversion into Indian Rupees.

Key safeguards include:

• minimum NOF of Rs.10 lakh for franchisees,
• execution of a formal franchisee agreement,
• mandatory surrender of foreign currency to the franchiser within seven working days,
• annual due diligence, spot audits and inspections, and
• full compliance with KYC/AML/CFT norms.

6. Operational Guidelines

The Master Direction lays down detailed instructions governing:

• purchase and sale of foreign exchange,
• cash transaction limits,
• issuance of Encashment Certificates and cash memos,
• reconversion of unspent Indian currency by non-residents,
• maintenance and replenishment of foreign currency balances, and
• export or disposal of surplus foreign currency.

A key regulatory development effective from July 1, 2024, requires that at least 75% of the foreign currency purchased by FFMCs and non-bank AD Category-II entities must be sold to the public on a quarterly basis, to prevent speculative holding.

7. Accounting, Reporting and Audit

Authorised Persons must:

• maintain prescribed registers in Forms FLM 1 to FLM 7,
• submit monthly, quarterly and annual statements through APConnect,
• undergo concurrent audits based on turnover thresholds, and
• submit audited balance sheets along with NOF certification annually.

RBI officers are empowered under FEMA to inspect books, records and transactions at any time.

8. KYC, AML and Governance

With effect from November 28, 2025, non-bank Authorised Persons must comply with:

• RBI (Non-Banking Financial Companies – KYC) Directions, 2025.

Boards of FFMCs and non-bank AD Category-II entities are required to:

• ensure directors meet “fit and proper” criteria,
• obtain annual declarations,
• constitute Nomination Committees, and
• report changes in directors to RBI promptly.

9. Revocation and Supervisory Powers

RBI reserves the right to:

• revoke or vary licences,
• impose additional conditions, or
• cancel branch or franchise approvals where an Authorised Person contravenes FEMA provisions or acts against public interest.

Internal Compliance Checklist

(For FFMCs / Non-bank AD Category-II Entities)

A. Licensing & Authorisation

• Valid RBI licence obtained and in force
• Licence displayed prominently at all business locations
• Minimum NOF maintained on an ongoing basis
• RBI informed immediately of any NOF erosion

B. Branches & Locations

• Prior RBI approval obtained for each additional branch
• Branch commenced operations within six months of approval
• Shops & Establishment registration / lease documents on record
• Airport counters comply with RBI location and transaction rules

C. Franchisee Management

• Franchisee agreement executed in RBI-prescribed format
• Franchisee NOF (Rs.10 lakh) verified annually
• Due diligence (KYC, police verification, site visit) completed
• Annual on-site inspection and six-monthly spot audits conducted
• Foreign currency surrendered by franchisees within 7 working days

D. Operational Controls

• Cash transaction limits strictly adhered to
• Encashment Certificates issued where required
• Cash memos issued on request
• Reconversion of INR supported by valid documentation
• 75% “sale to public” requirement monitored quarterly

E. Accounting & Records

• FLM Registers (1–7) maintained and updated daily
• Separate registers maintained for each branch
• Inter-branch transfers recorded as stock transfers
• Money changing transactions segregated from other business

F. Reporting to RBI

• Monthly FLM-8 statement filed by 10th of succeeding month
• Quarterly foreign currency account statements submitted
• Annual write-off statement submitted within one month of year-end
• Enforcement actions reported to RBI within one month

G. Audit & Inspection

• Concurrent audit system implemented as per turnover norms
• Audit scope covers KYC, cash limits, reporting and reconciliation
• Statutory auditor certification obtained annually
• Full cooperation extended during RBI inspections

H. KYC / AML / CFT

• KYC/AML/CFT policy aligned with RBI Directions, 2025
• Franchisees and agents covered under AML framework
• Monitoring for cash structuring and suspicious transactions
• STR/CTR filing mechanisms in place

I. Governance

• “Fit and proper” checks conducted for all directors
• Annual director declarations obtained
• Nomination Committee constituted and functioning
• Director changes reported to RBI promptly