Reserve Bank of India has formally recognised Foreign Exchange Dealers’ Association of India (FEDAI) as a Self-Regulatory Organisation (SRO) for all Authorised Dealers (ADs) in India’s foreign exchange market. This marks a major regulatory step towards industry-led supervision of the forex market under RBI oversight.
Key Highlights
- FEDAI applied for SRO status under RBI’s Omnibus Framework for recognition of SROs.
- RBI observed that FEDAI has already been functioning like an SRO, through:
- Rules governing conduct of members
- Standard market practices in inter-bank forex dealings
- Based on its long-standing role and credibility, RBI decided to grant formal SRO recognition.
- Transition period:
- FEDAI has been given one year to fully align its governance and operations with the Omnibus SRO framework.
- Membership expansion:
- FEDAI must extend membership to all categories of Authorised Dealers, ensuring wider and inclusive representation.
Transition & Governance Alignement
During the transition year, FEDAI must:
- Align its governance structure with RBI’s Omnibus SRO norms
- Upgrade internal systems and compliance mechanisms
- Improve transparency and accountability
- Ensure fair representation of all authorised forex market participants
Why this matters:
This transition phase ensures that self-regulation is credible, transparent and effective, not merely symbolic.
Why Did RBI Took This Decision?
- FEDAI had formally applied under the Omnibus SRO framework.
- RBI found that:
- FEDAI already frames rules for member conduct
- It plays a coordinating role between banks and RBI
- Formal recognition brings regulatory consistency and strengthens supervision in the forex market.
SRO Recognition Meaning
A Self-Regulatory Organisation (SRO) is:
- An industry-run body
- Operating under the overall supervision of the regulator (RBI)
Role of FEDAI as an SRO
- Set codes of conduct for authorised dealers
- Monitor ethical behaviour and compliance
- Resolve market-level issues faster
- Promote best practices and market development
Important:
- RBI remains the main regulator
- FEDAI will assist in day-to-day discipline and standard-setting
About Foreign Exchange Dealers’ Association Of India (FEDAI)
Background
- Established: 1958
- Nature: Association of banks dealing in foreign exchange (Authorised Dealers)
- Legal status: Incorporated under Section 25 of the Companies Act, 1956 (non-profit)
Core Functions
- Frames rules governing:
- Inter-bank foreign exchange transactions
- Forex dealings with customers
- Acts as a liaison between banks and RBI
- Supports development and reform of India’s forex market
Over decades, FEDAI has been central to shaping India’s forex market architecture.
Impact on FOREX Market & Banks
- Better discipline & standardisation in forex transactions
- Faster issue resolution for banks and ADs
- Reduced regulatory burden on RBI
- Supports risk-based supervision
- Aligns India’s forex governance with global regulatory practices
Self-Regulatory Organisations (SROs) In India
- Operate under regulatory oversight, but managed by industry participants
- Used in sectors like:
- Banking
- Capital markets
- Fintech
- Objectives:
- Improve compliance
- Enhance consumer protection
- Strengthen market integrity