Despite RBI red flag, unauthorised e-trading platforms just a click away

Alert list prompted a back-and-forth communication between FinMin and MeitY to take down the apps from Play Store. However, no government agency issued blocking orders

Several unauthorised electronic trading platforms (ETPs) — mostly domiciled overseas — continue to be available for downloads, despite being on the alert list of the Reserve Bank of India (RBI), in the absence of takedown mandates to app stores.

The RBI in September 2022 had released an alert list on the apps for not being authorised to deal in foreign exchange under the Foreign Exchange Management Act, 1999 (FEMA) or Electronic Trading Platforms (Reserve Bank) Directions, 2018. This was followed by another updated alert in February this year, which provides a list of 48 such unauthorised platforms.

People familiar with the matter said the RBI alert list does not include download URLs for apps and, thus, app stores may not be able to take suo motu cognizance of the warning to remove these.

The alert list prompted a back and forth communication between the Ministry of Finance and the Ministry of Electronics and Information Technology (MeitY) to take down the apps from the play store, Business Standard has learnt. 

However, no government agency issued blocking orders and apps such as Binomo, Olymp Trade, XM-Trading Point, Ava Trade, OctaFX, eToro, and MetaTrader 5, which were in the alert list, continue to be on Google Play store. 

Experts warn that in the absence of monitoring, users of such platforms are not only exposed to the risk of fraud, financial loss, data leak, misuse, theft, and cyber attacks, but legal action from enforcement agencies, too. The RBI has repeatedly warned that residents who trade on ETPs not authorised by the RBI shall render themselves liable for penal action under the FEMA.

Amol Kulkarni, director (research) at public policy research organisation CUTS International, said names of several entities were mentioned in both lists, which means these have been ignored. “There has to be some concrete action. These alert lists are a mechanism to generate awareness and caution the public against transacting with such entities… Users also face the risk of regulatory penalties if found dealing with such unauthorised entities.”

Kulkarni said there was a need for greater collaboration between regulators, platforms, industry bodies, and consumer groups, who can keep an eye on suspicious entities and act before it is too late.

The Enforcement Directorate (ED) froze the account balance of OctaFX (Rs 21.14 crore) under FEMA, and attached its properties worth Rs 34.75 crore under PMLA in September 2022 and April 2023, respectively. The agency also attached properties of certain individuals under the PMLA in case of illegal forex trading using TP Global FX that amounts to worth Rs 118.27 crore.

“Generally, the policy objective is to discourage people remitting foreign exchange using potentially high risk electronic trading platforms operated from outside India. There is no easy recourse against these ETPs because they are not based in India. The concern is that law enforcement authorities may not be able to help if users get defrauded or mis-sold securities on such foreign-based platforms,” said Avimukt Dar, Founding Partner at IndusLaw.

Trading instruments like complex derivatives and contracts for differences offered by some of these platforms are extremely complex for retail users to understand. Dar said such instruments may be more appropriate for sophisticated persons and misunderstanding of risks can occur due to lack of knowledge can prove a "toxic cocktail", leading to a possibility of fraud or financial exposure.

He said “The RBI directions (of 2018) are framed to ensure that every ETP is located in India. The second thing they require is a certain level of net worth so that they can satisfy claims in cases of insolvency. The third criteria are for robust infrastructure like adequate data security and anti-money laundering measures. Finally, the management has to be experienced and qualified to run such operations. The risk which the RBI's public service announcement aims to mitigate is that with foreign apps none of the above can be monitored by the RBI and Indian users are exposed to losing money through negligence, incompetence as well as actual fraud.”