The Reserve Bank of India (RBI) has cautioned Indian investors and banks against illegal overseas foreign exchange trading through internet and electronic trading portals which offer "guaranteed high returns".
"It has been observed that overseas foreign exchange trading has been introduced on a number of internet/electronic trading portals luring the residents with offers of guaranteed high returns based on such forex trading. The advertisements by these internet/online portals exhort people to trade in forex by way of paying the initial investment amount in Indian rupees," the RBI said in a circular.
According to the RBI, some companies have reportedly engaged agents who personally contact people to undertake forex trading/ investment schemes and entice them with promises of disproportionate / exorbitant returns.
"Most of the forex trading through these portals are done on a margining basis with huge leverage or on an investment basis, where the returns are based on forex trading. The public is being asked to make the margin payments for such online forex trading transactions through credit cards/deposits in various accounts maintained with banks in India."
"It is also observed that accounts are being opened in the name of individuals or proprietary concerns at different bank branches for collecting the margin money, investment money, etc," the RBI said.
Banks are advised to exercise due caution and be extra vigilant in respect of such transactions, the RBI warned.
It is clarified that any person resident in India collecting and effectingremitting such payments directlyindirectly outside India would make himself/ herself liable to be proceeded against with for contravention of FEMA, 1999 besides being liable for violation of regulations relating to know your customer (KYC) norms and anti money laundering (AML) standards, it said.
The RBI clarified that "a person resident in India may enter into currency futures or currency options on a stock exchange recognized under section 4 of the Securities Contract (Regulation) Act, 1956, to hedge an exposure to risk or otherwise, subject to such terms and conditions as may be set forth in the directions issued by the RBI from time to time".
A derivative transaction is only permitted based on the presence of an underlying price risk exposure for which purchase and/or sale of foreign exchange is permitted under FEMA, 1999.
Remittances under the Liberalised Remittance Scheme are allowed only in respect of permissible capital or current account transactions or a combination of both.
"All other transactions, which are otherwise not permissible under FEMA, 1999, including the transactions in the nature of remittance for margins or margin calls to overseas exchanges/overseas counterparty, are not allowed under the scheme," the RBI said.