Who is an authorised person under FEMA?

Due to its large number of responsibilities, the Reserve Bank of India is not responsible for all transactions of foreign exchange. It delegates these responsibilities to parties it refers to as ‘authorised persons.’ RBI has actually mandated an Act known as the FEMA Act which stands for the ‘Foreign Exchange Management Act.’ 

FEMA delegates how India’s foreign exchange is required to be carried out. Under Section 10 of FEMA, the RBI has authorized which individuals or parties can deal with foreign securities. According to FEMA’S Section 2(c), any individual authorized under Section 10 (1) such as an offer shore banking unit, money changer, the authorised dealer has the jurisdiction to deal in foreign securities and foreign exchange of the country.

Types of Authorised Persons

FEMA has divided the authorised persons into four categories. Each category captures one segment of those who are authorised persons under FEMA. They are as follows:

Category I

This covers entities like State Banks, Commercial Banks, Co-op and Urban Co-op Banks. From time to time, they are permitted to follow RBI issued directions for all their capital account and current account transactions.

Category II

Category II is inclusive of Coop Banks, Regional Rural Banks, and Upgraded FFMCs among other such entities. These entities are permitted certain non-trade related transactions from their current accounts. For FFMCs, all activities are permitted. 

Category III

Some selective financial institutions and others are included in Category III. All transactions that are incidental to foreign exchange are permitted to these entities by the Reserve Bank of India.

Category IV

This includes Full-fledged money changers like urban cooperative banks, the department of post, and other institutions. When it comes to permissible activities as per RBIs regulations, such entities can purchase foreign exchange securities for business visits abroad or private purposes.

Powers of RBI to inspect authorised person

In case the Reserve Bank of India apprehends any suspicious activity related to the aforementioned authorised persons from a third party, they possess the power to inspect the party that is charged. This right is mentioned very clearly in Section 12 of the FEMA. It states that the Reserve Bank can, at any point in time, seek out an inspection of the activities and business of officially categorized authorised personnel. The investigation will be carried out by an officer of the Reserve Bank and the investigation by the officer will be specially authorized by the Bank. 

The investigation can pertain to many issues but can be divided into the following classes. The first point of investigation can be about verifying the correctness of information, particulars, or any statement that has been furnished to the Reserve Bank. Another reason that justifies the powers of RBI to inspect authorised persons is if the RBI is looking to obtain any particulars or information which the authorised person has failed to furnish even after being called upon to do so. 

A third reason that validates the powers of RBI to inspect authorised personnel is if the RBI is attempting to secure the party’s compliance with any provisions of the Act or its regulations, rules, directions, or orders made. It is the duty of every individual who is officially authorized by the RBI or part of an organisation that is officially authorized to produce any information that pertains to the RBI’s investigation. This may be anything related to the affairs of the authorised personnel including the like of documents, books, accounts, and other such particulars that one may possess in their custody. 

These items are required to be furnished to the RBI through their representative officer. The officer also dictates the time frame in which these documents, accounts, books, and other particulars are required to be furnished. If the authorised personnel fail to comply with the request of the officer in their investigation, they are at risk of losing their authorization to deal in foreign securities. The RBI has the power to revoke the authorisation if they are apprehending suspicious activity. 

Conclusion

An authorised person is one who has the right to deal in foreign securities and foreign exchange in India. According to FEMA, the RBI has authorized four classes of personnel who can deal in these foreign securities. However, there are many reasons why RBI might seek out an investigation into authorised persons.