What changed
The Master Direction consolidates and updates instructions on compounding FEMA contraventions, replacing the May 2022 version. It incorporates the Foreign Exchange (Compounding Proceedings) Rules, 2024, which supersede the 2000 Rules. The document clarifies that compounding must be completed within 180 days from application receipt, as per Rule 4 of the 2024 Rules.
What it means for you
AD banks must ensure their systems prevent FEMA contraventions, as RBI can impose penalties under Section 11(3) for non-compliance. The 180-day compounding window provides a clear timeline for resolution. Banks should update internal processes to align with the new rules and avoid enforcement actions.
What you must do
- Review and update internal compliance systems to prevent FEMA contraventions by AD banks.
- Ensure staff are trained on the 2024 Compounding Rules and the 180-day application timeline.
- Advise constituents about the updated compounding guidelines as directed by RBI.
- Maintain robust reporting and record-keeping for foreign exchange transactions to avoid penalties.
Who it affects
All Authorised Dealer Category – I banks, All Authorised banks, Bank compliance and forex operations teams, Bank customers involved in foreign exchange transactions
What is the key change in the new Master Direction on compounding?
The Master Direction supersedes the 2022 version and aligns with the Foreign Exchange (Compounding Proceedings) Rules, 2024. It mandates that compounding must be completed within 180 days from the date of application receipt.
Are AD banks directly affected by this Master Direction?
Yes. RBI reiterates that AD banks must ensure their systems prevent FEMA contraventions. Under Section 11(3) of FEMA, RBI can impose penalties on authorized persons for non-compliance with directions or failure to file returns.
Which contraventions are not eligible for compounding?
Contraventions under Section 3(a) of FEMA, 1999, are explicitly excluded from compounding as per Section 15 of the Act. The Master Direction does not list other exclusions beyond this.