RBI tells banks to crack down on forex exchange activities by illegal entities


RBI Governor Shaktikanta Das addresses the media during a press conference (ANI)

Reserve Bank also urges the public to exercise utmost caution while using websites or applications, and parting with their money to any such unauthorized entity

Our Bureau
New Delhi/Mumbai  

The Reserve Bank of India (RBI) has issued a directive to banks regarding instances of unauthorized forex trading activities by certain entities. RBI has directed banks to report to the Directorate of Enforcement (ED) of any account being used to facilitate unauthorized forex trading action.

The RBI has noted that some entities are offering forex trading facilities to Indian residents, promising disproportionate or exorbitant returns. Upon investigation, it was found that these unauthorized entities engage local agents to open accounts at various bank branches to collect money for margin, investment, and other charges. However, the transactions in these accounts do not align with the stated purpose for opening them.

“The Reserve Bank of India (RBI) has come across instances of unauthorised entities offering foreign exchange (forex) trading facilities to Indian residents with promises of disproportionate/exorbitant returns” RBI notification said

The notification further adds “On investigation, it has been observed that to facilitate unauthorised forex trading, these entities have taken recourse to engaging local agents who open accounts at different bank branches for collecting money towards margin, investment, charges”.

Furthermore, these entities are facilitating unauthorized forex transactions by allowing residents to remit or deposit funds in rupees using domestic payment systems like online transfers and payment gateways.

To curb such activities, the RBI has emphasized that no person should deal in or transfer any foreign exchange or foreign security to any entity not authorized by the RBI, except under general or special permission. “RBI directs that no person shall deal in or transfer any foreign exchange or foreign security to any person not being an ‘Authorised Person’, unless under general or special permission of the Reserve Bank “said RBIs notification.

The RBI has also stated that no entity should operate an Electronic Trading Platform (ETP) without obtaining prior authorization from the RBI. Additionally, banks are urged to exercise greater vigilance and caution in this regard.

Moreover, banks are advised to inform their customers to engage in forex transactions only with authorized persons and on authorized ETPs. The RBI has urged banks to widely publicize the list of authorized persons and authorized ETPs available on its website.

Meanwhile, the Reserve Bank has also urged the public to exercise utmost caution while using websites or applications, and parting with their money to any such unauthorized entity. Through a release on Thursday, the central bank asked the public to verify and satisfy themselves that the website or application used or the entity they are dealing with is authorized to carry out the activity it performs.

The list of authorized payment system providers / authorized payment system operators is displayed on the RBI website.

This latest advisory to the public comes after the RBI noticed that TalkCharge Technologies Pvt. Ltd. The entity was issued directions on April 02, 2024, to stop the issuance and operation of its Prepaid Payment Instruments or Wallets and refund the balances held in the wallets within 15 days (which was later extended on the entity’s request to 45 days, by May 17, 2024).

“It has come to the notice of the Reserve Bank that the entity has issued a legal notice to its customers demanding the return of Cashback, failing which the matter will be reported to the RBI. Thus, the entity has created an impression in the minds of its customers that demand for repayment of cashback amount is being made as per the directions of the RBI,” the RBI said.

In the release, RBI today clarified that it has only directed the entity to refund the prepaid amount lying in the wallets, to the customers.


Kotak share tanks 10% after RBI bars on boarding customers digitally

The shares of Kotak Mahindra Bank fell around 10 percent after RBI barred the bank for on boarding new online customers, and issuing new credit cards. The investors reacted negatively since the opening of the market on the Thursday session, selling pressure is high on the Kotak shares.

“The Kotak Bank stock has been underperforming for many years now. After this news the stock may continue to be a laggard for more time. The image of the bank has been temporarily dented. When RBI brings in restrictions, getting back to normalcy after correcting all flaws can take few months to even a year. PayTM is a good example” said Vivek Karwa, VRIDHI Investment

He further added “the capacity of the bank in adding new clients and business will slow down and also the cross-selling business will slow down”.

Earlier also in October 2023, RBI had imposed a monetary penalty on the bank to the tune of Rs 3.95 crore for various non-compliance issues, including in managing risks and code of conduct in outsourcing of financial services, recovery agents engaged by banks, customer service in banks, and loans and advances – statutory and other restrictions.

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