RBI Foreign Exchange Management (Authorised Persons) Regulations 2026 Guide

Regulation Name: Foreign Exchange Management (Authorised Persons) Regulations 2026
Date Of Issue: 30 Apr 2026
Region: India
Agency: Reserve Bank of India (RBI)

RBI FEMA 401/2026: Complete Guide to Foreign Exchange Management (Authorised Persons) Regulations, 2026

The Reserve Bank of India (RBI) has introduced the Foreign Exchange Management (Authorised Persons) Regulations, 2026 through Notification No. FEMA 401/2026-RB dated April 30, 2026. The regulations establish a comprehensive framework governing entities authorized to deal in foreign exchange under the Foreign Exchange Management Act (FEMA), 1999.

The new framework significantly reshapes the foreign exchange ecosystem by:

• Introducing a revised authorization structure for Authorised Persons (APs).
• Establishing eligibility and net worth requirements.
• Defining permitted foreign exchange activities.
• Creating a formal Forex Correspondent (FxC) framework.
• Phasing out new Full-Fledged Money Changer (FFMC) authorizations.
• Strengthening governance, fit-and-proper criteria, and compliance obligations.

For banks, NBFCs, fintechs, money changers, foreign exchange intermediaries, and compliance teams, these regulations represent one of the most important changes to India’s forex authorization framework in recent years.

What Are RBI’s Foreign Exchange Management (Authorised Persons) Regulations, 2026?

The regulations have been issued under Section 10 and Section 47 of FEMA, 1999 and govern the authorization, operation, supervision, and compliance obligations of entities dealing in foreign exchange in India.

The framework introduces a structured categorization of authorized persons and specifies:

• Who can obtain authorization.
• Eligibility requirements.
• Capital adequacy requirements.
• Permitted foreign exchange activities.
• Ongoing compliance expectations.
• Reporting and governance obligations.
• Appeal mechanisms.
• Forex Correspondent operating models.

Key Changes Introduced by FEMA 401/2026

The regulations introduce several notable reforms:

1. New Three-Tier Authorized Dealer Framework

Applications for fresh authorization will be considered under:

• AD Category-I
• AD Category-II
• AD Category-III

Each category is assigned specific eligibility conditions and permitted activities.

2. Digital Application Process

Entities seeking authorization must submit applications through RBI’s PRAVAAH portal, streamlining the licensing process and enhancing regulatory oversight.

3. Forex Correspondent Scheme Formalization

The regulations establish a dedicated chapter governing Forex Correspondents (FxCs), enabling authorized dealers to expand foreign exchange services through an agency model.

4. Restrictions on New FFMC Authorizations

The RBI has clarified that fresh applications for FFMC authorization will generally not be considered, except for applications already under processing when the regulations came into force.

5. Enhanced Governance Standards

Promoters, directors, and key managerial personnel must satisfy stringent “fit and proper” requirements relating to integrity, reputation, experience, and regulatory history.

Categories of Authorised Persons Under RBI Regulations 2026

AD Category-I

Eligible Entities

Only banks licensed by the RBI may obtain AD Category-I authorization.

Permitted Activities

AD Category-I entities may undertake:

• Any current account transaction permissible under FEMA.
• Any capital account transaction permissible under FEMA.

This remains the broadest authorization category.

AD Category-II

Eligible Entities

The following entities may apply:

• RBI-licensed banks.
• RBI-registered NBFCs.
• FFMCs operating for at least two years.
• Forex Correspondents operating for at least two years with an average annual forex turnover of ₹50 crore during the previous two financial years.

Minimum Net Worth

Applicants must maintain a minimum net worth of:

₹10 crore.

Permitted Activities

AD Category-II entities may conduct:

• Non-trade current account transactions permissible under FEMA.
• Foreign trade transactions up to ₹25 lakh per transaction.
• Activities excluding gifts and donations.

AD Category-III

Eligible Entities

This category is designed for:

• Entities requiring foreign exchange transactions incidental to their business activities.
• Entities offering innovative products and services involving foreign exchange.

Minimum Net Worth

Applicants must maintain:

₹2 crore minimum net worth.

Permitted Activities

Activities will be specifically defined in the authorization issued by RBI.

Eligibility Conditions for Authorization

To qualify for authorization, applicants must satisfy multiple conditions.

Corporate Structure Requirement

Applicants must be incorporated under the Companies Act, 2013.

Memorandum of Association Requirement

The Memorandum of Association (MoA) must explicitly include the foreign exchange-related activities for which authorization is sought.

Fit and Proper Requirements

The RBI requires evaluation of:

• Qualifications.
• Industry experience.
• Integrity.
• Reputation.
• Character.
• Regulatory history.
• Legal and criminal records.

Additionally, at least 50% of directors and key managerial personnel must possess qualifications and experience in the financial services industry.

Directorate of Enforcement (DoE) Requirements

Where an applicant, promoter, director, KMP, or parent entity is under investigation by the Directorate of Enforcement (DoE), the applicant must obtain a No Objection Certificate (NOC) from the DoE.

If the DoE does not respond within 60 days, the application may proceed based on a declaration by the applicant, subject to prescribed conditions.

This provision attempts to balance regulatory scrutiny with operational efficiency.

Renewal Requirements for Existing Authorised Persons

Existing authorized entities may seek renewal if they satisfy prescribed net worth requirements:

Applications must be submitted at least two months before authorization expiry.

Conditions of Authorization

Validity

Authorizations remain valid until revoked or surrendered. For banks and NBFCs, authorization is linked to the validity of their banking license or certificate of registration.

Forex Turnover Requirements

Non-bank authorized persons must achieve minimum annual forex turnover levels:

These thresholds must be achieved within two years and maintained thereafter.

Net Worth Maintenance

If net worth falls below prescribed thresholds, restoration must occur within six months unless RBI grants additional time. Failure may result in authorization revocation.

Reporting and Governance Obligations

Authorized persons must:

• Commence operations within six months of authorization.
• Obtain RBI approval before significant changes in ownership or control exceeding 50%.
• Report director and KMP changes annually.
• Notify RBI regarding Enforcement Directorate investigations.
• Report new business locations and closures through APConnect.

These requirements strengthen regulatory visibility and operational transparency.

Forex Correspondent Scheme (FCS)

One of the most significant features of the regulations is the dedicated Forex Correspondent framework.

Who Can Appoint Forex Correspondents?

• AD Category-I entities.
• AD Category-II entities.

Activities Permitted for Forex Correspondents

Forex Correspondents may:

• Purchase foreign currency notes and coins.
• Purchase travellers’ cheques.
• Sell foreign currency for travel purposes.
• Act as MTSS sub-agents.

Principal-Agent Model

The regulations require operation through a principal-agent structure where authorized dealers remain accountable for compliance, governance, customer protection, and transaction monitoring.

Outsourcing Risk Management

Non-bank authorized dealers acting as principals must comply with RBI’s outsourcing risk management directions applicable to NBFCs.

End of Franchisee Model

The RBI has decided to discontinue the traditional franchisee framework.

Key provisions include:

• No new franchisee arrangements may be entered into.
• Existing franchisee arrangements must be discontinued within two years.
• Existing franchisees may transition into Forex Correspondents if eligible.

This marks a major structural shift in the foreign exchange distribution ecosystem.

Grounds for Rejection of Authorization Applications

The RBI may reject applications where:

• Information is false or misleading.
• Eligibility conditions are not met.
• Promoters, directors, or KMPs fail fit-and-proper standards.
• Authorization is not considered in the public interest.

Additionally, entities associated with revoked or surrendered authorizations may face a one-year cooling-off period before reapplying.

Appeal Mechanism

Applicants whose applications are rejected or whose authorizations are revoked may appeal to the Executive Director in charge of the Foreign Exchange Department at RBI’s Central Office in Mumbai. Appeals must be filed within 45 calendar days.

The Appellate Authority is required to issue a reasoned decision within 60 calendar days after receiving the appeal.

Compliance Implications for Banks, NBFCs, Fintechs, and Forex Businesses

The regulations create several strategic implications:

Banks

• Continue to dominate full-service foreign exchange operations.
• Gain opportunities to expand through Forex Correspondents.
• Must strengthen oversight of correspondent networks.

NBFCs

• New opportunities to participate as AD Category-II entities.
• Must satisfy higher governance and net worth standards.

Fintechs

• AD Category-III opens a potential pathway for innovative forex-related products and services.
• Strong governance and regulatory engagement will be critical.

Money Changers

• Face a transition period as FFMC licensing becomes more restrictive.
• Existing operators must focus on maintaining turnover and compliance requirements.

Compliance Teams

• Need enhanced due diligence on promoters, directors, and KMPs.
• Must strengthen monitoring, reporting, KYC, AML, and governance controls.

AML, KYC, and Financial Crime Compliance Considerations

The regulations reinforce the importance of robust compliance frameworks.

Organizations should ensure:

• Risk-based customer due diligence.
• KYC compliance.
• Transaction monitoring.
• Sanctions screening.
• Beneficial ownership verification.
• Regulatory reporting.
• Ongoing fit-and-proper assessments.

For institutions handling foreign exchange transactions, integrating AML and sanctions screening capabilities into onboarding and transaction monitoring workflows will become increasingly important under RBI’s evolving supervisory expectations.

Conclusion

The Foreign Exchange Management (Authorised Persons) Regulations, 2026 represent a major modernization of India’s foreign exchange authorization regime. By introducing a clearer categorization of authorized entities, formalizing the Forex Correspondent model, tightening governance requirements, and strengthening oversight mechanisms, the RBI aims to create a more resilient, transparent, and scalable foreign exchange ecosystem.

Banks, NBFCs, fintech companies, foreign exchange intermediaries, and compliance professionals should carefully assess the new requirements and implement appropriate governance, AML, KYC, sanctions screening, and reporting controls to ensure full compliance with FEMA 401/2026 and RBI expectations.

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