RBI Notifies Foreign Exchange Management (Authorised Persons) Regulations, 2026
Notification No. FEMA 401/2026-RB
The Reserve Bank of India (“RBI”) has notified the Foreign Exchange Management (Authorised Persons) Regulations, 2026 introducing a significantly revamped framework governing entities authorised to deal in foreign exchange under the Foreign Exchange Management Act, 1999 (“FEMA”).
The Regulations signals the RBI’s broader policy direction towards tighter governance, institutional accountability and formal recognition of emerging forex-linked business models.
Why the Regulations Matter?
The new framework restructures the authorisation regime into three categories i.e., AD Category-I, AD Category-II and the newly introduced AD Category-III, each with differentiated permissions, eligibility thresholds and compliance obligations.
The introduction of AD Category-III, which appears designed to accommodate entities dealing in foreign exchange incidental to innovative products and services. This potentially opens a regulated pathway for businesses operating at the intersection of technology, payments and forex facilitation.
Increased Regulatory Scrutiny and Governance Expectations
The Regulations substantially strengthen the RBI’s expectations around governance and regulatory oversight. Applicants and existing authorised persons are now subject to enhanced “fit and proper” requirements applicable not only to the entity, but also to promoters, directors and key managerial personnel.
The requirement that at least 50% of directors and KMPs possess financial services expertise reflects the RBI’s continued emphasis on institutional competence and board-level accountability in the forex ecosystem.
The Regulations also impose continuing compliance obligations relating to:
- minimum net worth maintenance;
- annual forex turnover thresholds;
- reporting of investigations by enforcement agencies;
- prior approval for changes in control or ownership; and
- ongoing disclosures through RBI’s digital compliance platforms.
Formalisation of the Forex Correspondent Model
Another notable development is the introduction of a dedicated framework for Forex Correspondents (FxCs) under a principal-agent structure. AD Category-I and AD Category-II entities may appoint FxCs for money changing activities, subject to board-approved policies, due diligence requirements and outsourcing risk management norms. This formalisation may create new business opportunities for distribution-focused financial intermediaries, regional forex operators and fintech-enabled forex service providers seeking structured participation in the regulated forex ecosystem.
Phase-Out of Legacy Franchisee Structures
The RBI has also directed that existing franchisee arrangements under the earlier money changing framework be discontinued within two years. Existing franchisees may transition into the Forex Correspondent framework, subject to compliance with the revised regime.
This transition is likely to trigger restructuring exercises across legacy forex distribution networks and may accelerate consolidation within the sector.
Key Takeaway
The Foreign Exchange Management (Authorised Persons) Regulations, 2026 reflect a calibrated regulatory shift towards greater formalisation, supervisory control and technology-aligned participation in India’s foreign exchange market.
While the framework increases compliance expectations, it simultaneously creates strategic opportunities for regulated financial institutions, fintech players and foreign investors seeking participation in India’s evolving cross-border payments and forex infrastructure ecosystem.
