What are the checks to be ensured by AD Category-I banks/ADs Category-II/FFMCs while conducting due diligence of Franchisees before appointing them? - FEMA - FAQ - FEMA

Ans. A franchiser, i.e. AD Category I Bank/ AD Category II / FFMC should undertake the following minimum checks while conducting due diligence of its franchisees: (i) existing business activities of the franchisee/ its position in the area (ii) minimum Net Owned Funds of the franchisee (iii) Shops Establishments / other applicable municipal certification in favour of the franchisee (iv) verification of physical existence of location of the franchisee, where restricted money changing activities will be conducted (v) conduct certificate of the franchisee from the local police authorities (certified copy of Memorandum and Articles of Association and Certificate of Incorporation in respect of incorporated entities) Note: Obtaining of Conduct Certificate of the franchisee from the local police authorities is optional for the franchisers. However, the franchisers may take due care to avoid appointing individuals/ entities as franchisees who have cases / proceedings initiated / pending against them by any law enforcing agencies. (vi) declaration regarding past criminal case, if any, cases initiated / pending against the franchisee or its directors / partners by any law enforcing agency, if any (vii) PAN Card of the franchisee and its directors / partners (viii) photographs of the directors / partners and the key persons of franchisee The above checks should be done on a regular basis, at least once in a year. The franchiser should obtain from the franchisees proper documentary evidence confirming the location of the franchisees in addition to personal visits to the site. The franchiser should also obtain a Chartered Accountant s certificate confirming the maintenance of minimum Net Owned Funds of the franchisee, i.e., Rs.10 lakh on an ongoing basis.