India’s crypto regulation now has teeth, experts say
India’s inclusion of crypto companies under its anti-money laundering rules has given teeth to regulators overseeing the industry for the first time, lawyers and industry participants said.
On Tuesday, the Treasury Department added anti-money laundering (AML) rules to the industry, requiring crypto-related businesses to register with its Financial Intelligence Unit (FIU) and comply with other mandatory processes under the Prevention of Money Laundering Act (PMLA). . These include performing verification processes such as Know Your Customer (KYC) and reporting suspicious activities.
Penalties range as high as $1,220 for each failure.
“This move is a teething issue because if entities do not report regularly and on a near real-time basis, they may be penalized,” said Vijayendra Pratap Singh, a senior partner at law firm AZB & Partners. “But this can also be seen as the next major further restriction on crypto in India after the tax regime” that saw crypto volumes in the country plummet.
Bringing the industry into AML regulation follows the Financial Action Task Force’s (FATF) June 2022 call for nations to speed up checks on crypto users’ identities. At the time, the global anti-money laundering and terrorist financing watchdog said only 11 of 98 jurisdictions surveyed had enforced and monitored the measure known as the “travel rule”.
“The move is a step towards implementing the FATF recommendation on virtual assets,” said Jaideep Reddy, a lawyer at law firm Trilegal, which has advised various crypto companies in India. “The decision on a licensing regime (global regulatory framework) appears to be developing separately based on discussions at the G-20 and international level.”
The move comes months after several of India’s crypto exchanges were investigated by law enforcement agencies. Several executives said the industry was already following such requirements, including KYC.
The Bharat Web3 Association, the body representing the crypto industry, said it had requested the Finance Ministry for this step, and the move was welcomed by industry leaders including Ashish Singhal, co-founder of the crypto exchange CoinSwitch Kuber, Sumit Gupta co-founder of rival CoinDCX, both of whom tweeted their support.
This gives crypto in India “more legitimacy” and will help “curb the activities of bad actors,” said Punit Agarwal, founder of crypto taxation platform KoinX.
Some in the industry were more guarded.
The new regime “will create a negative impact on centralized crypto entities in India,” said Dileep Seinberg, founder and CEO of MuffinPay, a crypto-neobank. It will “reduce massive transactions and business will move to decentralized exchanges and companies.”
“It is a reasonably fair step,” said Trilegal lawyer Reddy. “The only downside to this is that it has come in overnight and appears to be effective immediately, whereas there should have been a window of compliance to put processes in place.”
