Foreign Exchange Management (Guarantees) Regulations 2026

The Reserve Bank of India (RBI) has notified the Foreign Exchange Management (Guarantees) Regulations, 2026, establishing a comprehensive regulatory framework governing guarantees involving persons resident outside India, under the Foreign Exchange Management Act (FEMA), 1999

Objective of the New Regulations

• Unified Regulatory Framework: The Regulations provide a comprehensive and consolidated framework for the issuance, modification, and invocation of guarantees involving non-residents.
• Strengthening Compliance: The move aims to enhance regulatory clarity, transparency, and consistency in foreign exchange transactions related to guarantees

About Foreign Exchange Management Act (FEMA), 1999

• The FEMA, 1999 was enacted to regulate foreign exchange transactions and to facilitate external trade and payments while promoting the orderly development and maintenance of the foreign exchange market in India.
• FEMA replaced the Foreign Exchange Regulation Act (FERA), 1973, marking a shift from a restrictive regime to a management-oriented and liberalised framework.

Objectives of FEMA, 1999

• Facilitation of External Trade: FEMA aims to simplify and promote foreign trade and cross-border payments.
• Orderly Development of Forex Market: The Act seeks to ensure stability and systematic growth of the foreign exchange market in India.
• Balance of Payments Stability: FEMA supports macroeconomic stability by regulating capital flows and foreign exchange reserves

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Key Features of FEMA, 1999

• Civil Law Framework: FEMA treats violations as civil offences, unlike FERA which had criminal provisions.
• Current Account Convertibility: The Act allows free current account transactions subject to reasonable restrictions imposed by the government.
• Capital Account Regulation: Capital account transactions are regulated and permitted only to the extent specified by the Reserve Bank of India.
• Applicability of FEMA:
  • Territorial Scope FEMA applies across India and extends to Indian citizens, companies, and entities operating abroad.
  • Persons Covered: It applies to individuals, firms, companies in India, Indian offices abroad, and Non-Resident Indians (NRIs).
  • Transactions Covered: FEMA governs foreign exchange, foreign securities, exports and imports, banking and insurance services, and overseas companies substantially owned by NRIs
• Institutional Framework:
  • Role of Reserve Bank of India: The RBI acts as the primary authority for implementing FEMA and framing rules and regulations.
  • Role of Central Government: The Central Government frames rules related to current account transactions.
  • Enforcement Authority: The Enforcement Directorate (ED) is responsible for investigating and adjudicating FEMA violations
• Enforcement and Violations:
  • Penalties: Violations can attract monetary penalties up to three times the amount involved or ₹2 lakh, whichever is higher.
  • Continuing Offences: Additional penalties of ₹5,000 per day may be imposed for ongoing contraventions.
  • Seizure of Assets: In serious cases, properties and assets linked to FEMA violations may be seized by authorities

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