What changed
The Government of India notified the Foreign Exchange (Compounding Proceedings) Rules, 2024 on September 12, 2024, replacing the 2000 rules. RBI has reviewed and superseded earlier circulars on compounding, issuing a consolidated circular with updated procedures. The new rules prescribe a 180-day timeline for compounding from application receipt.
What it means for you
Banks must update their internal processes to align with the new compounding rules and ensure no contraventions attributable to them occur. Non-compliance with RBI directions or failure to file returns can attract penalties under Section 11(3) of FEMA. AD banks need to educate their constituents about the revised guidelines.
What you must do
- Review and update internal systems to prevent FEMA contraventions and ensure accurate reporting of foreign exchange transactions.
- Familiarize with the new Compounding Rules, 2024 and the 180-day compounding timeline.
- Communicate the revised guidelines to all relevant constituents and branches.
- Ensure systems incorporate checks and balances to avoid contraventions, as RBI may impose penalties under Section 11(3) of FEMA for non-compliance with directions or failure to file returns.
Who it affects
All Authorised Dealer Category – I banks, Authorised banks, Branches handling foreign exchange transactions, Compliance and legal teams of AD banks
What is the key change in the new Compounding Rules, 2024?
The new rules supersede the 2000 rules and introduce a 180-day timeline for compounding contraventions from the date of application receipt. RBI has also consolidated and updated the compounding guidelines.
Are there any contraventions that cannot be compounded?
Yes, contraventions under Section 3(a) of FEMA, 1999 are not eligible for compounding. Other contraventions under Section 13 may be compounded upon application.
What are the penalties for banks if they fail to comply?
Under Section 11(3) of FEMA, RBI can impose penalties on authorized persons for contravening directions or failing to file required returns. Banks must ensure robust systems to avoid such penalties.