The Reserve Bank of India (RBI) has introduced a major regulatory shift under the Foreign Exchange Management (Authorised Persons) Regulations, 2026. In a move to tighten oversight and modernize the retail foreign exchange market, the central bank has stopped accepting new applications for Full-Fledged Money Changers (FFMCs) and ordered a phase-out of the traditional franchisee model.
Key Regulatory Changes
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No New FFMCs: The RBI will no longer issue fresh licenses for the “Full-Fledged Money Changer” category. This marks the beginning of a transition toward a more structured and tiered authorization framework.
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End of Franchisee Arrangements: Authorized Dealers (ADs) and existing FFMCs must wind down their third-party franchisee outlets within two years. These arrangements, previously used to expand retail reach via small shops or travel agents, are being discontinued in favor of a more accountable “Forex Correspondent” model.
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New “AD Category III” Created: To accommodate modern business needs, the RBI has introduced Authorised Dealer Category III. This category is designed for entities that handle foreign exchange as an incidental part of their core business (e.g., travel platforms or digital payment firms).
The “Forex Correspondent” (FxC) Framework
Existing franchisees are not necessarily being shut down; rather, they are being asked to evolve. The RBI is encouraging a transition to the Forex Correspondent (FxC) model.
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Principal-Agent Accountability: Unlike the looser franchisee model, the FxC framework operates on a strict principal-agent basis.
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Direct Responsibility: The “Principal” (a bank or large AD) will be directly responsible for the conduct, compliance, and KYC (Know Your Customer) standards of their Forex Correspondents.
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Rationalization: This allows the RBI to maintain a broad retail reach for tourists and travelers while ensuring that a larger, regulated entity is monitoring every transaction.
Why This Matters
This move is part of a broader “rationalization” effort by the RBI to:
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Enhance Transparency: By removing the layer of independent franchisees, the RBI reduces the risk of undocumented or illegal currency trades.
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Modernize Delivery: The FxC model mirrors the “Business Correspondent” model used in domestic banking, which has successfully expanded financial inclusion in rural India.
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Streamline Oversight: Managing a few large ADs with vast agent networks is easier for the regulator than monitoring thousands of small, independent money changers.
Summary for Existing Operators
| Status | Current Rule |
| New Applicants | Applications for fresh FFMC licenses are suspended. |
| Current Franchisees | Must transition to the FxC model or close within 2 years. |
| Banks (AD Cat-I/II) | Can now appoint FxCs to expand their retail forex footprint. |
| Timeline | Regulations effective as of May 2026. |
