What changed
RBI issued a revised Memorandum of Instructions for opening and maintaining rupee/foreign currency Vostro accounts of non-resident Exchange Houses, replacing earlier instructions. The revision was prompted by increased transaction volumes and improved communication facilities between Exchange Houses and drawee banks.
What it means for you
Banks must now adhere to updated procedural guidelines for these accounts, including stricter documentation, legal agreements, and monitoring. The rationalization aims to streamline operations while ensuring compliance with FEMA and safeguarding against risks. Banks need to update their internal policies and train staff on the revised framework.
What you must do
- Obtain prior RBI approval before opening or maintaining any rupee/foreign currency Vostro account for a non-resident Exchange House.
- Conduct thorough due diligence on the Exchange House's financial standing, valid license from local authority, and authority to transact currency exchange/money transfer.
- Ensure comprehensive legal documentation with the Exchange House, including joint and several liability of all partners.
- Register Power of Attorney and specimen signatures of signing officials as per normal banking practice.
- Bring the revised instructions to the notice of all concerned constituents and update internal compliance manuals.
Who it affects
AD Category-I banks, Non-resident Exchange Houses in Gulf countries, Hong Kong, and Singapore, Bank compliance and operations teams handling cross-border remittances
Do we need RBI approval for every new Vostro account for an Exchange House?
Yes, prior RBI approval is mandatory for opening and maintaining rupee/foreign currency Vostro accounts of non-resident Exchange Houses, as per the revised Memorandum.
What due diligence is required before onboarding an Exchange House?
Banks must assess the Exchange House's financial standing, verify its valid license from the local monetary/supervisory authority, and confirm its authority to handle currency exchange/money transfer.
Does the circular affect existing Vostro accounts?
Yes, the revised instructions apply to all such accounts. Banks should review existing arrangements to ensure compliance with the updated Memorandum.