Even as the government is grappling with regulation of crypto assets, a new challenge has emerged in the form of online trading in currency, which has caught the fancy of punters and investors. The Reserve Bank of India (RBI) is addressing the challenges posed by a sudden surge in tech savvy investors who are using their smartphones to invest in highly risky assets on unregulated trading platforms across the world. In February, the RBI issued a warning on the proliferation of such trades and also recently put on its website the list of such unauthorised platforms. But more needs to be done to stem this malaise. Resident Indians are permitted to buy or sell foreign currency only through entities authorised by the central bank and for purposes specified by it. Similarly trading in foreign exchange derivatives is permitted only on the electronic trading platforms recognised by the RBI and on the three stock exchanges, the BSE, the NSE and the MSEI. But numerous unauthorised electronic trading platforms have been actively soliciting Indian residents to do forex trading on them; the number of such platforms as well as the volumes have increased manifold since the beginning of the pandemic. Of concern is that these platforms are misleading investors by guaranteeing them outsized returns through aggressive advertising in social media, search engines, OTT platforms and gaming apps. It is obvious that the target investor group for these platforms are younger individual investors, who may not be conversant with the legality of these transactions. The number of complaints regarding frauds committed on these unauthorised platforms and reports of investors losing money through these platforms have been rapidly increasing.
The transactions on the overseas platforms have to be done using the limit allowed for overseas investments under the Liberalised Remittance Scheme which cannot be used for paying margin money for leveraged trades. But these forex transactions are leveraged trades on foreign exchange derivative contracts. RBI pointed out the risk of penal action for violation of FEMA guidelines, emanating from such transactions in its circular issued in February. The central bank, earlier this month, put out a list of 34 such unauthorised platforms on its website, to drive home the message to the investors. The problem is that the extent to which RBI can control the digital platforms -- which are not under the regulatory authority of any country — is limited. With the regulator not in a position to ban these platforms or to preventtheir malpractices, issuing warnings to those trading on them is the only option available.
The awareness campaign against these platforms may have to be broad-based and featured on the social media and other online portals frequented by these users. This will ensure that the warnings reach the target group. The central bank also needs to set up a group or department to monitor these unauthorised digital platforms used by individuals for investment, trading, borrowing and payment so that such activities can be curbed faster. This department can also receive and address complaints related to digital transactions of every kind. With crypto trading turning unattractive due to the depressed market and regulatory crackdown, punters are gravitating to options such as digital forex trading. The central agencies should join the RBI in keeping tabs on the activities of these online trading portals.