RBI clamps down on online forex trading

Reserve Bank of India (RBI) has directed banks to close the accounts of those customers who use credit / debit cards or online banking facilities for prohibited foreign exchange transactions.

RBI has asked banks to ensure that no customer resident in India uses online banking or credit card facility for remitting payments directly or indirectly outside the country towards overseas foreign exchange trading through web portals.

The central bank has also asked banks to advise customers undertaking such transactions that they are liable to be prosecuted for contravention of the Foreign Exchange Management Act (FEMA), besides being liable for violation of regulations relating to Know Your Customer (KYC) norms and anti money laundering standards.

RBI had earlier advised banks to exercise caution on margin payments being made by the public for online forex trading transactions through credit cards / deposits in various accounts maintained with banks in India.

Banks were also advised to exercise caution in respect of the accounts being opened in the name of individuals or proprietary concerns at different bank branches for collecting the margin money, investment money, etc in connection with such transactions.

The central bank has been trying to curb the offshore rupee market by asking banks to cut down on overnight positions as well as asking foreign institutional investors to produce client documents in order to hedge their currency risk in the onshore forward markets.

RBI has already reduced the limit for remittances made by residents to $75,000 from $200,000 per financial year.

RBI has warned that banks that fail to carry out necessary measures to stop such spurious forex trading activities would be proceeded against under section 11(3) of FEMA and that the central bank may take any action deemed necessary.