In recent years, India has witnessed a significant rise in cryptocurrency trading and investment. Although the potential of cryptocurrencies and blockchain technology is widely acknowledged, the Indian government has voiced concerns regarding the potential risks linked with digital assets. These risks include fraud, money laundering, and terrorism financing. In an effort to combat money laundering and other illicit activities, the country recently announced that it would be imposing Anti-Money Laundering (AML) provisions on the crypto sector.
India Makes Regulatory Progress In Crypto
Despite its initial skepticism towards the crypto market, the Indian government and central bank are actively striving to provide regulatory clarity on the matter. Although Anti-Money Laundering (AML) standards have been applied to cryptocurrencies before, the Indian government has recently taken the step to notify all relevant parties of their obligation to adhere to the national AML law.
India’s Ministry of Finance released a notification earlier today stating that crypto and NFT businesses must be considered “reporting entities” under the Prevention of Money-Laundering Act (PMLA). As a result, crypto companies operating in India will now be required to comply with similar reporting standards and Know Your Customer (KYC) requirements as those followed by other entities such as banks, payment system operators, and securities intermediaries.
Under the new regulations, Know Your Customer (KYC) norms will no longer be just a recommended practice for crypto companies in India but rather a mandatory legal obligation. As a result, all crypto businesses operating in the country will be required to report any suspicious transactions to the Financial Intelligence Unit (FIU).
This development is significant given that the Indian central bank had previously considered imposing a complete ban on cryptocurrencies. During the G20 meeting held in Bengaluru, India, last month, Finance Minister Nirmala Sitharaman highlighted the need for a harmonized crypto regulatory framework among all G20 nations. She said, “We are talking to all countries if all the countries can achieve a standard operating procedure that will be effective while following a regulatory framework. It’s under discussion with G20 nations.”
Indian Crypto Industry Players Show Support
Although the notification lacks specific details, the Prevention of Money-Laundering Act (PMLA) requires financial institutions to maintain transaction records for the past ten years, furnish them to officials when requested, and authenticate all clients’ identities.
India’s crypto industry players have expressed their willingness to collaborate with regulators and extended their support. CoinCDX co-founder Sumit Gupta said, “Slowly but surely, we are moving towards a regulated crypto ecosystem! Entities such as CoinDCX are now required by law to conduct due diligence and enhanced due diligence under the PMLA. We, at CoinDCX, are committed to combating money laundering and terror financing. We have been voluntarily conducting these compliances for a while now, but happy to see that this has now been made into law.”
As regulators globally are imposing stricter Anti-Money Laundering (AML) standards on cryptocurrencies, the recent notification will further add to the complexity for crypto companies operating in India. The industry has already faced challenges in recent years, and the situation is set to become more challenging with the new regulations. Additionally, per the amended tax rules from March 2022, digital asset holdings and transfers will be subject to a 30% tax.
Following the implementation of the new tax policy, trading volume on major cryptocurrency exchanges in India plummeted by 70% within a span of ten days and dropped by almost 90% in the subsequent three months. The strict tax policy compelled crypto traders to turn to offshore exchanges and led many budding crypto projects to relocate outside India.
In 2023, as India celebrated its first presidency of the G20, Finance Minister Nirmala Sitharaman called for global efforts to regulate cryptocurrencies. She emphasized the need for a coordinated approach to “understand the macro-financial implications” of cryptocurrencies, which could be used to reform crypto regulations worldwide. As a result, India has requested the collaboration of the IMF and Financial Stability Board (FSB) to work on a technical document related to crypto assets.
