Authorised Persons

In one line

An authorised person is the licensed intermediary through whom lawful foreign exchange dealings must pass, and sections 10 to 12 provide for his authorisation, his duties and the Reserve Bank's control over him. Precisely: section 10 authorisation, revocation and the duties on both sides of a transaction; section 11 the Reserve Bank's power to issue directions and to impose a penalty for breach; section 12 its power of inspection; and section 44A the disapplication of the Reserve Bank's powers to an International Financial Services Centre.

Why the Act needs an intermediary

Because a state cannot supervise millions of transactions, but it can supervise a few thousand institutions. By requiring dealings to pass through a licensed intermediary, FEMA converts an impossible task of surveillance into a manageable task of regulation: the Reserve Bank instructs the authorised persons, and the authorised persons apply the rules to their customers.

The intermediary therefore carries a public function while remaining a commercial business, and the tension between those two is what sections 10(4), 10(5) and 10(6) are about. A bank wants the customer's business; the Act requires it to refuse business that is not compliant, and to report the customer if he does not satisfy it.

This is also the answer to a question about how FEMA works without permissions. Under FERA the state controlled by granting or refusing permission to each transaction. Under FEMA it controls by instructing the channel, which is faster, cheaper, and leaves the honest trader dealing with his bank rather than with a department.

Section 10: the authorised person

Section 10(1) provides that the Reserve Bank may, on an application made to it in this behalf, authorise any person to be known as an authorised person to deal in foreign exchange or in foreign securities, as an authorised dealer, money changer or off-shore banking unit or in any other manner as it deems fit.

Section 10(2) requires an authorisation to be in writing and to be subject to the conditions laid down therein.

Section 10(3) is the revocation power. The Reserve Bank may revoke an authorisation at any time if it is satisfied that:

(a) it is in the public interest so to do; or

(b) the authorised person has failed to comply with the conditions subject to which the authorisation was granted or has contravened any of the provisions of the Act or any rule, regulation, notification, direction or order made thereunder.

The proviso protects the authorised person in the second case: no such authorisation shall be revoked on the ground of failure to comply with a condition or of contravention unless the authorised person has been given a reasonable opportunity of making a representation in the matter.