The Reserve Bank of India (RBI) has notified the Foreign Exchange Management (Authorised Persons) Regulations, 2026 vide Notification No. FEMA 401/2026-RB dated April 30, 2026, which has been published in the Gazette of India (Extraordinary) (Part III — Section 4) on May 06, 2026. In line with Regulation 1(2), these regulations come into force from the date of their publication in the Official Gazette, i.e. May 06, 2026. They fundamentally restructure the framework governing entities authorised to deal in foreign exchange in India — from large commercial banks to money changers and fintech platforms — by introducing a new AD Category‑III, replacing the franchisee model with a Forex Correspondent (FxC) Scheme, closing the door on fresh FFMC licensing, and establishing a comprehensive new authorisation and appeal framework.
🔴 Immediate Effect — Key Headline Changes
- No new FFMC licences — Fresh applications for Full-Fledged Money Changers will not be entertained, except those already under process
- Franchisee model phased out within 2 years — All existing franchisee arrangements must be discontinued and transitioned to the new Forex Correspondent Scheme
- New AD Category-III — Created for entities (fintechs, travel platforms etc.) offering forex services incidental to their core business
- Forex Correspondent Scheme — Replaces franchisees; AD Category-I and AD Category-II can appoint FxCs under a principal-agent model
- PRAVAAH portal mandatory — All applications for authorisation must be filed online at https://pravaah.rbi.org.in
| Detail | Information |
|---|---|
| Notification Number | FEMA 401/2026-RB |
| Notification Date | April 30, 2026 |
| Publication in Official Gazette | May 06, 2026 (Gazette of India, Extraordinary, Part III — Section 4) |
| Effective From | Date of publication in the Official Gazette (May 06, 2026) |
| Issued by | Reserve Bank of India — Foreign Exchange Department, Central Office |
| Legal Authority | Section 47(2)(h) read with Section 10, FEMA 1999 |
| Gazette Reference | CG-MH-E-06052026-272222 | Part III — Section 4 |
| Signed by | N. Senthil Kumar, Chief General Manager, RBI |
Note: Notification No. FEMA 401/2026‑RB is dated April 30, 2026, but the Foreign Exchange Management (Authorised Persons) Regulations, 2026 come into force from the date of their publication in the Official Gazette, which is May 06, 2026.
🏛️ Section 1 — Background: Why New Regulations?
India's foreign exchange management framework for authorised persons was governed by a patchwork of earlier FEMA notifications, Master Directions, and circulars — including the Master Direction on Money Changing Activities — accumulated over two decades since FEMA replaced FERA in 1999. The regulatory architecture had become fragmented, with franchisee models creating accountability gaps, FFMC proliferation creating oversight challenges, and no clear framework for newer business models like fintechs offering incidental forex services.
The 2026 regulations consolidate, rationalise, and modernise this framework into a single cohesive regulation with clear categories, defined eligibility criteria, a structured principal-agent model, a formal appeal mechanism, and ongoing compliance requirements — aligned with India's broader financial sector regulatory philosophy of "fit and proper" governance and digital-first application processes.
💡 Three Headline Objectives of FEMA 401/2026
- Rationalise the authorisation and renewal framework — Clear eligibility, net worth requirements, fit-and-proper criteria, and a formal 3-tier AD classification
- Extend the principal-agent model — Replace fragmented franchisee arrangements with a structured Forex Correspondent Scheme under AD supervision
- Strengthen checks and balances — Mandatory ongoing compliance, minimum turnover requirements, RBI approval for ownership changes, and formal appeals to an Appellate Authority
🔑 Section 2 — Key Definitions (Chapter I, Regulation 2)
The regulations introduce a precise definitional framework. Key terms defined include:
| Term | Definition |
|---|---|
| Authorised Dealer (AD) | A person authorised as an authorised dealer under Section 10(1) of FEMA, 1999 |
| Annual Forex Turnover | Aggregate of foreign exchange purchased and sold by an authorised person or FxC from/to the public directly and through agents/franchisees/FxCs during a financial year — excluding inward remittances processed |
| Forex Correspondent (FxC) | An agent of an AD appointed under the Forex Correspondent Scheme (FCS) issued by RBI — the new replacement for franchisees |
| Full-Fledged Money Changer (FFMC) | A money changer authorised under Section 10(1) of FEMA — no fresh applications will be entertained |
| Net Worth | Same meaning as under Section 2(57) of the Companies Act, 2013 |
| Control | Same meaning as Section 2(27), Companies Act, 2013 |
| KMP (Key Managerial Personnel) | Same meaning as Section 2(51), Companies Act, 2013 |
| Significant Influence | Same meaning as Explanation (a) to Section 2(6), Companies Act, 2013 |
🏗️ Section 3 — Three-Tier Authorised Dealer Framework (Chapter II, Regulations 3–6)
The regulations establish a clear three-tier AD classification system with defined eligible entities, minimum net worth requirements, and permitted activities for each category:
3A. Eligible Entities — Who Can Apply for Each Category?
| Category | Eligible Entities | Min. Net Worth (at commencement) |
|---|---|---|
| AD Category-I | A bank licensed by the Reserve Bank | Not separately specified (bank licence requirements apply) |
| AD Category-II | (i) A bank licensed by RBI or an NBFC registered with RBI; OR (ii) An FFMC or FxC functioning for at least 2 years with average annual forex turnover of ₹50 crore during the previous two financial years | ₹10 crore |
| AD Category-III NEW | An entity: (i) required to deal in foreign exchange incidental to the activities undertaken by it; OR (ii) that intends to offer innovative products and services that may involve dealing in foreign exchange | ₹2 crore |
| FFMC | No fresh applications — only those under process as on the regulation's effective date will be considered. Existing FFMCs continue until renewal. | ₹25 lakh (single branch) / ₹50 lakh (multi-branch) for renewal |
💡 Who Is AD Category-III Designed For?
AD Category-III is a brand-new category specifically created for entities that deal in foreign exchange as an incidental or enabling part of their core business — such as travel platforms, online booking engines, fintech companies, export-oriented businesses, and enterprises offering innovative forex-linked products. The permitted activities for each AD Category-III entity will be specified in the individual authorisation issued by RBI — making it flexible enough to accommodate diverse business models.
3B. Permitted Activities — What Can Each Category Do?
| Category | Permitted Activities |
|---|---|
| AD Category-I | Any current account and capital account transaction permissible under FEMA — the broadest scope; all forex activities are available |
| AD Category-II | (i) Any non-trade current account transaction permissible under FEMA, other than gift and donation; AND (ii) Foreign trade transactions up to ₹25 lakh per transaction |
| AD Category-III | As specified in the authorisation issued by RBI — customised to the entity's specific business model and forex needs |
| FFMC | (i) Purchase of foreign currency notes and travellers' cheques; (ii) Sale of foreign currency notes and travellers' cheques for foreign travel purposes; AND (iii) Functioning as MTSS agent under the Money Transfer Service Scheme guidelines |
3C. Fit and Proper Criteria (Regulation 4(5))
All applicants, their promoters, directors, and KMPs must satisfy the following "fit and proper" criteria:
- Qualification and experience in the financial services industry
- Integrity, reputation and character
- Absence of convictions or restraint orders from any court of law, disqualifications under the Companies Act 2013, sanctions from a regulatory body, or expulsion from a professional body
Critical proviso: At least 50% of directors and KMPs must have qualification and experience in the financial services industry.
⚠️ DOE Investigation — NOC Requirement
If the applicant, any promoter, director, KMP, or parent entity is under investigation by the Directorate of Enforcement (DoE), a No Objection Certificate (NOC) from DoE — dated not earlier than 30 days before the application — must be submitted. If no reply is received from DoE within 60 days of the request (the request must have been made not earlier than 90 days before the RBI application), the application will be processed without NOC based on the applicant's declaration.
3D. Application Process — PRAVAAH Portal Mandatory
All fresh authorisation applications must be made through the PRAVAAH portal at https://pravaah.rbi.org.in to the regional office of RBI under whose jurisdiction the applicant's registered office falls. Applications must be made by companies incorporated under the Companies Act, 2013 — other entity types are ineligible. The MoA must include the foreign exchange activity for which authorisation is sought.
🔄 Section 4 — Renewal Framework for Existing Authorised Persons (Regulation 5)
Existing authorised persons (those holding valid authorisation as on April 30, 2026) may continue operating until expiry. To renew under the new framework, minimum net worth requirements must be met:
| Authorised Person Type | Minimum Net Worth for Renewal | Application Timing |
|---|---|---|
| Single Branch FFMC | ₹25 lakh | At least 2 months before expiry of existing authorisation. Existing authorisation continues until renewal is granted or rejected. |
| Multiple Branch FFMC | ₹50 lakh | |
| AD Category-II | ₹10 crore | |
| AD Category-III | ₹2 crore |
📋 Section 5 — Conditions of Authorisation (Chapter IV, Regulation 8)
Validity and Co-terminus Rule
An authorisation granted under these regulations is valid until revoked or surrendered — no fixed term. However, an authorisation granted to a bank or NBFC is co-terminus with its Banking Licence or Certificate of Registration respectively.
Minimum Annual Forex Turnover Requirements
Non-bank entities (other than banks and NBFCs) must achieve and maintain minimum annual forex turnover within 2 years from the date of these regulations or commencement of forex business, whichever is later:
AD Category-II
₹50 Crore
Minimum annual forex turnover
FFMC
₹10 Crore
Minimum annual forex turnover
Ongoing Obligations for Non-Bank Authorised Persons
- Commence operations within 6 months of issuance of authorisation — failing which, authorisation may lapse
- Prior RBI approval required before any change in management, control, or ownership of more than 50%
- Report within 30 days from end of FY — any change of director or KMP, and any event/information affecting fit-and-proper status during the year
- Report DoE investigation within 30 days of becoming aware about the investigation
- Net worth restoration — if net worth falls below the minimum, restore within 6 months (or such extended time as RBI grants). Failure may lead to revocation.
Reporting New/Closed Places of Business via APConnect
Non-bank authorised persons must report through the APConnect application (https://apconnect.rbi.org.in):
- New place of business (including temporary counter): within 7 calendar days of beginning operations
- Closure of a place of business or temporary counter: within 7 calendar days
- Shifting of registered office (not being a place of business): within 7 calendar days
Grounds for Revocation of Authorisation
RBI may revoke an authorisation at any time if:
- It is in the public interest to do so; OR
- The authorised person has failed to comply with any condition of authorisation or has contravened any provision of FEMA or any rule, regulation, notification, direction, or order made thereunder
⚖️ Section 6 — Rejection Rules and One-Year Bar (Regulation 6)
Applications may be rejected by RBI if they are incorrect/false/misleading, the applicant does not meet eligibility requirements, the applicant/promoter/director/KMP is not "fit and proper," or if it is not in public interest. Additionally, a one-year bar applies to applications from entities:
- Whose authorisation has been revoked for any reason
- Who have voluntarily surrendered their authorisation
- Whose application has been rejected for any reason other than inability to meet net worth
- Where one or more promoters/directors/KMPs have significant influence in any such barred entity
📡 Section 7 — Appeal Mechanism (Chapter V, Regulation 9)
For the first time, a formal statutory appeal mechanism is established for authorised person decisions. An applicant whose application has been rejected, or an authorised person whose authorisation has been revoked, may appeal as follows:
| Detail | Provision |
|---|---|
| Appellate Authority | Executive Director in charge of the Foreign Exchange Department, Central Office, RBI, Mumbai |
| Filing Deadline | Within 45 calendar days from the date of receipt of the rejection/revocation letter |
| Decision Timeline | Appellate Authority shall pass a reasoned order within 60 calendar days from the date of receipt of the appeal — after giving the applicant an opportunity of being heard |
🤝 Section 8 — New Forex Correspondent Scheme (Chapter VI, Regulations 10–15)
The Forex Correspondent (FxC) Scheme is the centrepiece structural reform of these regulations — it formally replaces the fragmented franchisee model with a governed principal-agent framework:
Who Can Appoint an FxC?
AD Category-I or AD Category-II entities may appoint one or more FxCs as agents for conducting money-changing business under the principal-agent model.
What Activities Can an FxC Undertake?
- Purchase of foreign currency notes/coins and travellers' cheques
- Sale of foreign currency notes/coins and travellers' cheques for foreign travel purposes
- Functioning as MTSS sub-agent under the Money Transfer Service Scheme guidelines
Key Governance Rules for FxC
- The principal must formulate an internal Board-approved policy for engaging FxCs covering: eligible entity types, fit-and-proper criteria, permitted activities, net worth requirements, due diligence, transaction reporting, charges, customer service and grievance redressal
- All FxC transactions are reflected in the books of account of the principal — the principal bears ultimate accountability
- An FxC may act as agent to more than one authorised dealer
- An FxC may, with its principal's approval, deal with other FxCs or authorised persons not its principal
- The principal must submit details of all FxCs via APConnect within 15 days from end of each calendar quarter
- The principal must ensure preservation and confidentiality of customer information held by its FxCs
✅ Outsourcing Risk Management
A non-bank authorised dealer acting as principal (whether or not an NBFC) must follow the Reserve Bank of India (Non-Banking Financial Companies – Managing Risks on Outsourcing) Directions, 2025 for managing risks associated with its FxCs. This ensures the FxC model maintains robust risk controls consistent with broader RBI outsourcing guidelines.
🚫 Section 9 — Franchisee Model Phased Out (Chapter VII, Regulation 16)
This is one of the most operationally significant changes in the regulations. The earlier franchisee model — where AD Category-I, AD Category-II, and FFMCs could appoint third-party franchisee outlets for money-changing business — is being permanently discontinued:
| Aspect | 🔴 Franchisee Model (Being Phased Out) | 🟢 Forex Correspondent Scheme (New) |
|---|---|---|
| New arrangements | No new franchisee arrangements permitted | New FxC appointments available to AD Cat-I and Cat-II |
| Existing arrangements | Must be discontinued within 2 years from April 30, 2026 | Existing franchisees may be appointed as FxCs subject to FCS conditions |
| Principal accountability | Fragmented — franchisee operated independently under brand licence | All transactions in principal's books — full accountability on principal |
📊 Section 10 — Complete Before vs After Comparison
| Area | 🔴 Earlier Framework | 🟢 New (FEMA 401/2026) |
|---|---|---|
| AD Categories | AD Category-I, AD Category-II, FFMCs — no Category-III | Three formal categories: AD Cat-I, AD Cat-II, and new AD Category-III for incidental/innovative forex |
| FFMC fresh licences | Available — could apply for new FFMC licence | Not available — no fresh FFMC applications entertained |
| Franchisee model | Active — AD Cat-I, Cat-II and FFMCs could appoint franchisees for money-changing | Discontinued — no new franchisees; existing wound down within 2 years |
| Agent model | Informal/limited — Master Direction guidelines governed | Formal Forex Correspondent Scheme (FCS) — structured principal-agent model with Board-approved internal policy, RBI quarterly reporting |
| Application process | Physical applications to RBI regional offices — paper-based | Mandatory online via PRAVAAH portal (pravaah.rbi.org.in) |
| Authorisation validity | Fixed term requiring periodic renewal | Valid until revoked or surrendered (perpetual, subject to ongoing compliance) |
| Appeal mechanism | No formal statutory appeal mechanism prescribed in the regulations | Formal appeal to Executive Director, FED, RBI — within 45 days; reasoned order within 60 days |
| Min. turnover — AD Cat-II | Not explicitly codified in regulations | ₹50 crore minimum annual forex turnover — must achieve within 2 years and maintain ongoing |
| Ownership change | Required RBI approval — but process was circular-based | Formally codified: prior RBI approval required for any change in management, control, or ownership of more than 50% |
| Regulatory consolidation | Fragmented — governed by multiple Master Directions, circulars, and older FEMA notifications | Single consolidated regulation FEMA 401/2026-RB — all provisions in one place |
❓ Section 11 — Frequently Asked Questions
📝 Bottom Line — What This Means for the Forex Ecosystem
FEMA 401/2026‑RB is the biggest reset of India’s authorised person regime since FEMA, 1999. Two changes stand out: no fresh FFMC licences and a time‑bound exit for the franchisee model. RBI wants forex distribution to move into a tightly supervised principal–agent structure through the Forex Correspondent (FxC) Scheme.
The new AD Category‑III finally gives fintechs, travel platforms and other innovators a clear regulatory home. A formal appeal route, mandatory PRAVAAH portal filings, perpetual authorisations (till revoked) and strict ongoing compliance tests all raise the bar for serious forex players.
Existing FFMCs and franchisee‑driven businesses have a two‑year transition window, up to April 30, 2028. Use it to re‑work your model: check eligibility for AD Category‑II or III, put a Board‑approved FxC policy in place, and convert viable franchisee outlets into FxCs well before the deadline.
Source: Notification No. FEMA 401/2026-RB dated April 30, 2026 — Foreign Exchange Management (Authorised Persons) Regulations, 2026. Published in the Gazette of India Extraordinary, Part III — Section 4, CG-MH-E-06052026-272222. Reserve Bank of India, Foreign Exchange Department, Central Office. For more regulatory updates, visit corplawupdates.in. This article is for informational purposes only and does not constitute legal or financial advice.
