In the intensifying battle against unlawful foreign exchange trading platforms, Reserve Bank of India (RBI) Governor Shaktikanta Das has heightened the call for increased scrutiny and vigilance from banks. Addressing participants at the FIMMDA-PDAI annual conference in Barcelona, Das expressed his concerns over the continuous exploitation of banking channels by individuals and entities for funding unauthorized foreign exchange (FX) trading activities.
The persistent misuse of banking infrastructure for such operations underscores the necessity for banks to intensify their vigilance. The central bank has been actively disseminating warnings to both banks and the general public about the perils of engaging with these unauthorized forex trading platforms.
In a move to regulate online financial trading, the RBI laid out a comprehensive framework in 2018, designed for the authorization of electronic trading platforms (ETPs). These platforms, which are not recognized as stock exchanges, facilitate transactions in various financial market instruments, including securities, money market instruments, foreign exchange instruments, and derivatives regulated by the RBI.
Despite these measures, the subsequent year saw a surge in deceptive promotional campaigns by unauthorized ETPs. These entities have been luring Indian residents with offers of forex trading facilities through various digital media channels such as social networking sites, search engines, Over The Top (OTT) platforms, gaming applications, and more.
The central bank has also issued warnings about these unauthorized ETPs recruiting agents who deliberately target and deceive people into engaging in forex trading and investment schemes by promising them highly disproportionate and exorbitant returns. Numerous instances of fraudulent activities and significant financial losses incurred by residents through such trading schemes have been reported, further encouraging the RBI’s stance on the issue.
To assist the public in avoiding such pitfalls, the RBI has repeatedly cautioned against carrying out forex transactions on unauthorized ETPs and against the risks associated with remitting or depositing money for these unauthorized transactions.
A pivotal component of the RBI’s efforts in this pursuit has been the compilation and consistent updating of an alert list that names and shames unauthorized forex trading platforms. In November of the preceding year, the list expanded with the addition of 19 new entities/platforms/websites, bringing the total up to 75 unauthorized forex trading platforms. Notable entries comprised of Admiral Market, BlackBull, Easy Markets, Enclave FX Real Gold Capital Ltd, and Gate Trade among others.
Governor Das, during his address, pointed out that price transparency is still being developed in the forex market and is yet to benefit retail customers as much as the larger ones. He observed that the divergence in pricing for small and large customers in forex markets is significantly wider than can be justified by operational considerations alone.
Furthermore, Das urged banks to undertake initiatives to better facilitate the use of the FX retail platform. Looking ahead, he emphasized the importance of enhancing and broadening the participation of Indian market players in both domestic and offshore markets for rupee derivatives—doing so with prudence firmly in mind.
A spotlight was also cast on the liquidity constraints in over-the-counter (OTC) derivatives markets, notably within interest rate derivatives, inhibiting effective risk management by the broader economy. With the market for credit derivatives—a crucial component for supporting lower-rated corporate bonds—yet to flourish, Das underscored the significance of the recent launch of the first credit default swap (CDS) transaction, following the updated guidelines issued in May 2022.
Das concluded by acknowledging that full exploitation of the new regulatory frameworks and the opportunities they present is still unattained by all domestic market participants. He called upon banks to implement appropriate safeguarding measures to meet the challenges brought about by the introduction of new products, participants, and markets, thus ensuring a steady yet innovative march towards a secure and transparent financial environment.
