What changed
The 2005 compounding procedure (A.P. DIR Series Circular No.31) is superseded by this circular. A 180-day timeline for issuing compounding orders from receipt of a completed application is now explicit. The circular adds indicative criteria to classify contraventions as technical/minor, serious, or involving money-laundering/national security concerns.
What it means for you
Banks and their customers get a more transparent and time-bound process for resolving FEMA violations, reducing uncertainty. The 180-day deadline pressures RBI to act faster, but serious cases may still be referred to Enforcement Directorate. AD banks must update internal compliance manuals and advise clients on the new application format and timelines.
What you must do
- Update internal FEMA compliance procedures to reflect the 180-day compounding timeline and new classification criteria.
- Train staff handling forex transactions to identify and advise clients on the updated compounding application process.
- Inform corporate and individual constituents about the supersession of the 2005 circular and the new application format.
- Ensure that any suo moto disclosures of contraventions are promptly submitted to RBI with complete documentation.
Who it affects
All Category-I Authorised Dealer banks, Corporate and individual forex users, RBI Compounding Authorities, Directorate of Enforcement
What is the new timeline for compounding applications?
The Compounding Authority must issue the compounding order within 180 days from the date of receipt of a completed application by RBI.
Does this circular change the types of contraventions that can be compounded?
No. Section 15 of FEMA still permits compounding of all contraventions except those under Section 3(a). The circular only updates the procedure and adds indicative criteria for classifying violations.
What happens if a contravention involves money-laundering?
If RBI finds sufficient cause for further investigation, it may recommend the matter to the Directorate of Enforcement for action, rather than compounding it.