On 30 April 2026, the Reserve Bank of India issued Notification No. FEMA 401/2026-RB, the Foreign Exchange Management (Authorised Persons) Regulations, 2026, replacing the earlier framework under FEMA, 1999. The new regime significantly reshapes India’s forex intermediation structure by tightening eligibility, raising compliance expectations, and shifting responsibility upward to stronger principals.
| Point | Summary |
| RBI notification | FEMA 401/2026-RB issued on 30 April 2026. |
| Legal effect | Replaced the earlier authorised persons framework under FEMA, 1999. |
| Core direction | Stronger principals, tighter eligibility, and higher compliance burden. |
Authorised Person Categories
The notification retains the three-tier Authorised Dealer structure, but with important changes. AD Category-I continues to cover banks and permits all FEMA-allowed current and capital account transactions. AD Category-II now covers banks, RBI-registered NBFCs, and eligible existing FFMCs or Forex Correspondents with at least two years’ operation and average annual forex turnover of ₹50 crore in the preceding two financial years.
| Category | Eligible entities | Permitted activities |
| AD Category-I | RBI-licensed banks | All FEMA-permitted current and capital account transactions. |
| AD Category-II | Banks, RBI-registered NBFCs, and eligible FFMCs / Forex Correspondents | Non-trade current account transactions excluding gift and donation; foreign trade transactions up to ₹25 lakh per transaction. |
| AD Category-III | Entities dealing in forex incidental to their primary business, including innovative fintech-type models | As specifically authorised by RBI. |
| FFMC | Existing FFMCs only, for renewal; no fresh licences | Purchase and sale of foreign currency notes and travellers’ cheques; MTSS agency business. |
A new AD Category-III category has been introduced for entities dealing in forex incidental to their primary business or offering innovative forex products and services, including fintech-style models. Its activities will be determined by individual RBI authorisation, and the minimum net worth requirement is ₹2 crore.
Existing FFMCs may renew, but no fresh FFMC licences will be issued.
| Feature | Position under the new framework |
| AD Category-III | New category for incidental or innovative forex business. |
| Activity scope | Set by individual RBI authorisation. |
| Net worth | ₹2 crore. |
| FFMC licensing | No fresh FFMC licences; only renewal of existing authorisations. |
Major Regulatory Shifts
Renewal is no longer a purely administrative exercise. Net worth must be maintained continuously, governance standards must be met on an ongoing basis, and renewal applications must be filed at least two months before expiry to preserve continuity while they are under consideration.
| Change | What RBI has done | Practical effect |
| Renewal | Made net worth and governance continuous requirements. | Renewal is no longer a routine filing exercise. |
| Net worth | Fixed minimum thresholds by category. | Weakly capitalised entities must improve or exit. |
| Turnover | Made minimum annual forex turnover mandatory. | Non-performing entities can lose authorisation. |
| Franchisees | Discontinued the franchisee model. | Existing networks must transition to FxCs. |
| FFMC licensing | Closed fresh FFMC licensing. | No new FFMC entrants. |
| Fit and proper | Formalised ongoing eligibility checks. | Directors, KMPs, and promoters are under continuing scrutiny. |
For most entities, authorisation is now valid until revoked or surrendered, except for banks and NBFCs, which remain co-terminus with their underlying licences or registration. The earlier practice of time-bound authorisations is therefore largely replaced.
Net Worth and Turnover
Minimum net worth is now a continuing condition. If net worth falls below the threshold, it must be restored within six months or within such extended time as the RBI allows. A one-year cooling-off period also applies in cases of revocation, voluntary surrender, or certain rejected applications.
| Category | Minimum net worth | Minimum annual forex turnover |
| Single-branch FFMC | ₹25 lakh | ₹10 crore |
| Multiple-branch FFMC | ₹50 lakh | ₹10 crore |
| AD Category-II | ₹10 crore | ₹50 crore |
| AD Category-III | ₹2 crore | Not specified generally; subject to authorisation |
Minimum annual forex turnover has also become an enforceable condition. AD Category-II entities must maintain ₹50 crore per annum, and FFMCs must maintain ₹10 crore per annum, after the applicable transition period.
(Annual forex turnover is defined as the aggregate of foreign exchange purchased and sold, directly and through agents, franchisees, and Forex Correspondents, while inward remittances are excluded.)
Operational compliance will need stronger internal systems
The new framework cannot be managed through ad hoc reporting or periodic legal review alone. It requires internal systems capable of monitoring thresholds, tracking governance events, managing outlet transitions, and meeting prescribed reporting deadlines through APConnect and other supervisory channels.
| Reporting event | Deadline |
| New place of business, including temporary counters | Within seven calendar days of commencement. |
| Closure of any place of business | Within seven calendar days of closure |
| Shifting of registered office | Within seven calendar days of shifting. |
| FxC details and places of business | Within 15 days of each calendar quarter end. |
| Event affecting fit and proper status | Within 30 days of occurrence. |
| Change in management, control, or ownership exceeding 50 percent | Prior RBI approval before the change takes effect. |
Franchisee to FxC Transition
Under revised guidelines, the franchisee model has been discontinued. No new franchise agreements may be entered into, and all existing arrangements must be wound-up within two years. After that period, any outlet continuing in forex business must operate as a Forex Correspondent (FxC) under an AD Category-I or II principal. This means the exisiting franchisee model is either to be closed or converted into FxC model.
An FxC is not an independent licensee; it functions under a principal-agent model and does not hold separate RBI authorisation. The principal bears direct responsibility for the FxC’s conduct, customer data, and compliance. The principal must also adopt a board-approved FxC policy covering eligibility, fit and proper standards, permitted activities, net worth, due diligence, reporting, fees, and grievance handling.
Fit and Proper Standards
The notification formalises fit and proper requirements for the entity, promoters, directors, and Key Managerial Personnel, and makes them ongoing rather than one-time. At least 50 percent of directors and KMPs must have qualifications and experience in financial services, which is a hard eligibility condition.
If any person is under Directorate of Enforcement (DoE) investigation then information about such investigation must also be reported to the relevant RBI regional office within 30 days of becoming aware of it.
Practical Impact
For AD principals, the compliance burden is significantly higher because they now carry direct responsibility for downstream FxC conduct, reporting, and data protection. FxC reporting through APConnect, including reporting of business locations and quarterly details, becomes a mandatory operating discipline.
Immediate Actions
For existing FFMCs, next course of action is straightforward i.e.
- the fresh licensing route is closed, renewal remains available, and the strategic options are limited to upgrading to AD Category-II if eligible,
- review net worth and turnover against the applicable thresholds even if continue to act as an FFMC till licence is in operation,
- assess board and KMP composition against the 50 percent financial-services requirement, and check whether any covered person is subject to DoE proceedings,
- converting distribution outlets into FxCs under an AD principal, or exiting the business and immediately freeze new franchise agreements.
- build APConnect reporting workflows, document customer-data controls, obtain board approval for FxC policies, and assess eligibility for AD Category-II upgrade where applicable.
Conclusion
FEMA 401/2026-RB should be read as a regulatory reset of India’s retail forex intermediary architecture. It closes the fresh FFMC licensing route, embeds minimum turnover and net worth as real supervisory tests, phases out franchisee-based distribution, and places principal-level accountability at the centre of the system.
For well-capitalised entities with experienced governance and the capacity to supervise downstream channels, the new framework creates room for expansion and consolidation. For smaller or compliance-light operators, it sharply narrows the margin for continuation. The strategic choices are now clear: strengthen, restructure, align under a principal-led model, or exit.
