Tightening the noose around banks’ foreign exchange business, the Reserve Bank of India (RBI) on Thursday asked them to conduct an adequate background check of personnel recruited as dealers from other banks. According to the norms, banks would also have to introduce a compulsory annual two week continuous break for dealers such that no dealer remains at the job continuously.
The revision in guidelines, the regulator said, was needed to ?ensure that banks maintain the required standard in their foreign exchange business.? The RBI added, ?The need for effective control over the dealing operations is of great importance as possibilities exist for manipulation of exchange rates, dealing positions, mismatches.?
In keeping with the new guidelines it will be mandatory for banks to introduce voice recorders in the dealing rooms. ?Experience has shown that recourse to taped conversation proves invaluable to the speedy resolution of differences. The tapes may be preserved for at least two months and where a dispute has been raised, until the issue is resolved. Access to the equipment and tapes should be subject to strict control,” said the RBI.
For reporting of profit or loss of foreign exchange business banks would have to adhere to the uniform accounting standard drawn up by the FEDAI and approved by the RBI. Banks would have to undertake valuation of portfolio at least at the end of each month and on the balance sheet date. ?The evaluation should disclose the actual profit / loss under different heads,” said RBI.
The regulator also wants banks to ensure that the dealing, mid-office, back-office, accounting and reconciliation functions should be segregated. Bank managements would also have to provide opportunities to the dealing room staff to get continuously updated on global market trends in forex and derivatives trading and risk control.
?The dealers should not be entrusted with accounting work. Deals struck should be recorded on printed deal slips.? These deal slips would have to indicate the name of the broker (if any), and the counterparty bank, currencies, amounts, time, deal rate due dates and other necessary particulars depending on the type of product traded, under authentication of the dealer.
Banks would also have to ensure that there is no delay in forwarding the deal slips to the back office for further processing. RBI has also come up with revised risk containment norms. ?All the individual positions are to be aggregated into overall risk position at the close of business each day to ensure that the same does not exceed the overnight limit authorised by NOPL and AGL approved by RBI,? said RBI.