Amendments in the FEMA, 1999
RBI Updates January 2024
1. Amendment to the Master Direction – Credit Card and Debit Card – Issuance and Conduct Directions, 2022
The Reserve Bank of India vide Notification No. RBI/2023-24/132 DOR.RAUG.AUT.REC.No.81/24.01.041/2023-24 dated March 07, 2024 (“the Notification”), amended certain provisions of and added new provisions to Master Direction – Credit Card and Debit Card – Issuance and Conduct Directions, 2022 (“MD”).
The amendments to the existing provisions of the MD have been given in comparative table form under Point I in the Annexure to the Notification.
Further, the new provisions added to the MD and the earlier circulars and paragraphs of MD repealed are given under Point II & III in the Annexure to the Notification.
The amendments or additions to the provisions of the MD inter-alia provide for the following:
- The Card Issuers are now under obligation to put in place an effective mechanism for monitoring the end use of funds used vide business credit cards issued to business entities / individuals for business expenses.
- Card-issuers to provide option to modify the billing cycle of the credit card at least once, as per the cardholders’ convenience as opposed earlier one-time option provided by the card-issuer.
- Further, prior approval shall not be required by the banks and NBFCs to become a co-branding partner of card-issuers.
The amended provisions shall come into effect from March 07, 2024.
The link for the aforesaid Notification is as follows:
https://rbidocs.rbi.org.in/rdocs/notification/PDFs/CIRCULARAMENDMENTTOMDA5CCCE00D45C4B6E8990BCEEE5810A87.PDF
2. Foreign Exchange Management (Non-debt Instruments) Second Amendment Rules, 2024.
On March 14, 2024, The Department of Economic Affairs (DEA), under the Ministry of Finance, amended the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 (Principal Rule) by inserting an explanation for the clause defining the term “Unit”.
Rule 2 (aq) of the Principal Rule defines Unit as “Unit” means a beneficial interest of an investor in an investment vehicle. Pursuant to amendment, an explanation has been inserted which states that Unit shall now include Partly paid-up Units, which are permitted under the regulations framed by the Securities and Exchange Board of India, in consultation with Government of India.
The link for the aforesaid notification is as follows:
https://egazette.gov.in/(S(wqebw5xxonxdrvhwu5z1fwc0))/ViewPDF.aspx
3. Omnibus Framework for recognising Self-Regulatory Organisations (SROs) for Regulated Entities (REs) of the Reserve Bank of India
With the growth of the entities regulated by RBI viz. Regulated Entities (RE) in terms of number, scale of operations, increase in adoption of innovative technologies and enhanced customer outreach, a need was felt to develop better industry standards for self-regulation. Hence in pursuance of the same and as announced in the Statement on Developmental and Regulatory Policies dated October 06, 2023, the Reserve Bank of India, on March 21, 2024, notified the Omnibus Framework for recognising Self-Regulatory Organisations (SROs) for REs.
SROs enhance the effectiveness of regulations by drawing upon the technical expertise of practitioners and also aid in framing/ fine-tuning regulatory policies by providing inputs on technical & practical aspects, nuances and trade-offs involved.
SROs can also help in fostering innovation, transparency, fair competition, and consumer protection. In sum, self-regulation shall complement the extant regulatory/ statutory framework for better compliance, in letter and spirit.
In deliverance of this role, the SRO shall frame necessary best practices/ standards/ codes within the regulatory framework prescribed by RBI for voluntary adoption by its members and these shall not be a substitute to the prescribed regulatory framework for REs.
The Omnibus Framework is divided into 4 Chapters containing provisions regarding the:
- Objectives of the SRO;
- Responsibilities of SROs towards its members;
- Responsibilities of SROs towards the Regulator;
- Eligibility Criteria for entities which are intending to function as an SRO;
- Governance framework of the SRO;
- Requirements for making application for obtaining recognition as SRO;
- Conditions for grant of recognition; and
- Membership Criteria.
It shall be noted that, the existing SROs already recognized by the Reserve Bank shall continue to be governed by the terms and conditions under which they were recognized, unless this framework is specifically extended to such SROs.
The link for the aforesaid Framework is as follows:
https://rbidocs.rbi.org.in/rdocs/notification/PDFs/OMNIBUSSROFRAMEWORK5409D9BD06FA4C489ED266763E354DE6.PDF
4. Investment by Regulated Entities (REs) in Alternative Investment Fund (AIF)
On December 19, 2023, the Reserve Bank of India, in order to address the regulatory concerns in investment by REs in AIFs, advised that REs shall not make investments in any scheme of AIFs which has downstream investments either directly or indirectly in a debtor company of the RE.
Further, if any RE is already an investor in AIF Scheme and such scheme subsequently makes a downstream investment in any such debtor company, then the RE shall liquidate its investment in the scheme within 30 days from the date of such downstream investment by the AIF and in case REs are not able to liquidate their investments within the above-prescribed time limit, they shall make 100 percent provision on such investments.
With a view to ensuring uniformity in implementation among the REs, and to address the concerns flagged in various representations received from stakeholders, the Reserve Bank of India vide Notification No. RBI/2023-24/140 DOR.STR.REC.85/21.04.048/2023-24 dated March 27, 2024, advised further that:
- Downstream investments as referred above shall exclude investments in equity shares of the debtor company of the RE, but shall include all other investments, including investment in hybrid instruments.
- Provisioning as referred above shall be required only to the extent of investment by the RE in the AIF scheme which is further invested by the AIF in the debtor company, and not on the entire investment of the RE in the AIF scheme.
- Investments by REs in AIFs through intermediaries such as fund of funds or mutual funds are not included in the scope of the notification.
The link for the aforesaid notification is as follows:
https://rbidocs.rbi.org.in/rdocs/notification/PDFs/NOTI14027032024A0474453CF9549A69FFB3EA0CA948602.PDF