Money changers demand relief as accounts frozen over suspicious transfers

The industry body for foreign exchange providers, or money-changers, says accounts of members are being frozen on suspicion of proceeds received unknowingly from fraudsters through multi-layering of f

The $4 billion-a-year money changing business is in a bind: bank accounts of its members are being frozen (or a lien is marked on them) by cyber police when customers pay for foreign exchange with proceeds received unknowingly from fraudsters through the multi-layering of funds.

 

The all-lndia Association of Authorised Money Changers and Money Transfer Agents (MCAMTA) has raised the matters with the Reserve Bank of India (RBI), Ministry of Finance (MoF) and Ministry of Home Affairs (MHA).

 

According to MCAMTA, such actions by the cyber police results in money changers’ day-to-day operations being affected with their accounts being frozen or lien-marked. The industry body wants this practice to be stopped as they are RBI-regulated entities (REs), and is of the view that in such cases, the matter may be investigated by the police on a fast-track basis instead of blocking their accounts.

 

The RBI, sources said, has conveyed to MCAMTA that this issue falls beyond its jurisdictional scope; and the industry body is now seeking legal remedies.

 

Money changers are entities which deal in currencies; and a key cog in the international travel market; and according to estimates, the sector employs nearly 11 million countrywide.

 

“Since the police have the information on the entire chain of funds being layered, they may investigate the matter with transparency and not treat the entities as a suspect in the crime”, said Bhaskar Rao P, general secretary, MCAMTA. He pointed out that the business is such that money changers receive multiple payments in a day, and since they are RBI-regulated entities, they deserve to have the same levels of immunity that banks do such cases.

 

“This is very important as the entities have a large transaction base and any random account freeze leads to adverse impact on customer service, financial hardship, loss and even complaints/litigation,” Rao said.

 

In many instances, the foreign exchange purchased is to make a remittance towards the education of children, and customers apprehend that such transactions may be delayed due to non-operative accounts due to an abrupt and random freeze of money changers’ accounts.

 

MCAMTA has argued before the RBI, MoF and MHA that when its members receive funds in the normal course of business, they should be treated as holders in due course of a negotiable instrument, and that the title over the funds received cannot be subjected “to the bad title of the payer” as the funds are received for a consideration. Furthermore, if this is not done, the entire digitisation process will be affected as there is no way money changers can verify the credentials of the funds as long as it is received from KYC-verified customers’ accounts.

 

MCAMTA’s woes come as the business is bracing for changes following the central bank’s draft licensing framework for authorised persons under the Foreign Exchange Management Act, 1999’ in December 2023. The suggested new norms aim to rationalise the authorisation framework for money changers in view of the widespread availability of banking services to the public, and to look at alternate models for facilitating foreign exchange-related services. Among the proposed measures is a new category of money changers who can operate through the agency model by becoming forex correspondents. Another proposes that money-changers be allowed to put through trade-related deals up to Rs 15 lakh per transaction.

 

In the grey zone

 

RBI’ stance: The issue falls beyond its jurisdictional scope

Way forward for MCAMTA: To seek legal remedies

What the industry body wants: The matter be investigated by the police on a fast-track basis instead of their accounts being blocked

State of the business: It is bracing for changes following the central bank draft licensing framework for authorised persons under the Foreign Exchange Management Act, 1999’ in December 2023.