Overseas forex trading through electronic / internet trading portals by Indian Residents


 

The internet is full of schemes highlighting get quick schemes through forex trading. As the reach of internet is huge, and the actual players can hide behind layers of companies, most of the forex trading through portals are done on a margining basis with huge leverage or on an investment basis.

The public is being asked to make the margin payments for such online forex trading transactions through credit cards or deposits in various accounts maintained with banks in India.

Reserve Bank of India, has advised all  Authorised Dealer Category – I (AD Category – I) banks too adhere to its instructions as in  A.P. (DIR Series) Circular No. 53 dated April 07, 2011 and A.P. (DIR Series) Circular No. 46 dated November 17, 2011. As per the above two circulars,  AD Category I banks were advised to exercise due caution and be extra vigilant in respect of the margin payments being made by the public for online forex trading transactions through credit cards / deposits in various accounts maintained with banks in India.

Even after two years of the Circular, RBI observed that some banking customers continue to undertake online trading in foreign exchange on portals / websites offering such schemes wherein they initially remit funds from Indian bank accounts using credit cards or other electronic channels to overseas websites / entities and subsequently receive cash refunds from the same overseas entities into their credit card or bank accounts.

As such online transactions are in violation of FEMA, 1999, AD Category I, RBI vide Circular No. RBI/2013-14/265 A.P. (DIR Series) Circular No. 46 dt.September 17, 2013 has directed banks as under:

 

  1. All AD Category I banks who offer credit cards or online banking facilities to their customers should advise their customers that any person resident in India collecting and effecting / remitting payments directly /indirectly outside India in any form towards overseas foreign exchange trading through electronic/internet trading portals would make himself/ herself / themselves liable to be proceeded against with for contravention of the Foreign Exchange Management Act (FEMA), 1999 besides being liable for violation of regulations relating to Know Your Customer (KYC) norms / Anti Money Laundering (AML) standards.
  2.  As and when any AD category I bank comes across any prohibited transaction undertaken by its credit card or online banking customer the bank will immediately close the card or account of the defaulting customer and report the same to Chief General Manager-in-Charge, Forex Markets Division, RBI.
  3.  If it is observed that the concerned AD category I bank has failed to carry out the measures as outlined above, Reserve Bank of India may proceed against the defaulting bank under section 11(3) of FEMA, 1999 and take any action as may be deemed necessary.

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