The original list of 34 names was issued on Sep. 7, 2022.
A scan throws up names such as OctaFX, which has sponsored Delhi Capitals, an Indian Premier League men’s team in 2022.
Some of the other names on RBI’s alert list for entities that are not allowed to offer foreign exchange transactions include Alpari, Binomo, Forex.com, FXstreet, OlympTrade and others. It is not uncommon to see advertisement banners by these entities on Indian websites, offering attractive returns on trades in foreign exchange and other asset classes, including cryptocurrencies.
Why is this significant? Why has the RBI or the government not outright banned these entities yet? Is there a systemic risk to foreign exchange markets or legitimate trade from such platforms?
The genesis of RBI’s action stems from an internal report that was submitted within the central bank in November 2021. The inter-departmental group, which was created in July 2021, had been tasked with studying ‘Foreign Exchange Trade on Unauthorised Trading Platforms’.
The RBI group’s scrutiny showed the proliferation of such unauthorised platforms on the internet, including on app stores, allowing easy access to trade in forex and other assets, despite not having a licence to do so. In some cases, it was noted that the platforms provided leverage to prospective traders, combined with bonus and rewards to lure them to invest in such assets.
The rise in overall digital transactions in the economy over the last few years, and the sharp jump in online investments since Covid-19 pandemic seems to have also contributed to the proliferation of such platforms that promise big returns.
The panel noted how these platforms provide ease of access to investors through their website, mobile applications, advertisements across media and social media, and even sponsoring mainstream events such as IPL. It was also found that some of these platforms were providing half-information or misinformation on being authorised to provide such trades and, at the same time, providing demos to customers that made such trading appear similar to casino games or lotteries with guaranteed high returns. In some cases, the platforms claim to be regulated by offshore regulators, as a means to showcase their legitimacy.
Some platforms offer bonus for signing up for trading, followed by leverage of as high as 1:500 times on trades.
Such platforms have also proved to be adept at creating local bank accounts for banking and Unified Payment Interface transactions or use of global wallets or even accepting payments in crypto assets. By doing so, they have effectively subverted RBI efforts to prevent use of Indian debit and credit cards for foreign exchange trades.
With such flashy advertisements and sponsorships, customers are unaware that they are trading with unauthorised platforms that are violating Indian laws on foreign exchange management, capital account norms, liberalised remittance scheme, and norms on offering electronic trades.
This means that the Indian customer runs the risk of losing money with no recourse to regulatory support, if these unauthorised platforms shut down or down keep their promises on returns. Worse, this can leave the customer open to being scrutinised, taxed or even investigated for transactions that fall outside Indian regulations.
Also, RBI has repeatedly issued clarifications on such unauthorised trading platforms, along with a list of authorised players, who are licensed to provide such trading activity. The customers may not be in a position to then use ignorance of norms as a tenable defence in court, if they end up being investigated.