Anti-money laundering rules for Indian crypto firms to be formalized soon

A set of proposed rules has been shared with Indian crypto exchanges by the Financial Intelligence Unit, a financial sector watchdog tasked with monitoring suspicious transactions related to money laundering and terrorist financing.

The expansion of the anti-money laundering rules is aimed at further tightening the control over crypto trading. Earlier, the government had imposed capital gains and transaction taxes on virtual digital assets in FY22.

The proposed rules were first shared with exchanges on March 10, following an announcement on March 8 that brought virtual digital assets – or cryptoassets – under the purview of the Anti-Money Laundering Act.

The rules are likely to be formalized by April 21, two of the three executives quoted earlier told BQ Prime on condition of anonymity as details are not yet public.

The Economic Times first reported on Monday that the FIU had proposed rules to track suspicious transactions involving crypto assets.

Crypto service providers should “investigate, as far as is reasonably possible, the background and purpose of all complex, unusually large transactions, and all unusual patterns of transactions, which have no obvious financial or legal purpose”, the Economic Times reported citing the draft document . .

BQ Prime was unable to obtain a copy of the draft document. According to the three managers quoted above, FIU’s proposed rules cover:

• Proper know-your-customer or KYC checks for customers.

• Transaction monitoring.

• Staff training on the prevention of money laundering.

• Risk assessment of products.

• Compliance with the Financial Action Task Force’s travel rule,

First introduced in the United States, the travel rule requires financial intermediaries to share information with each other for checks required during the transfer of funds.

Storage in cold wallets – used to keep crypto-assets offline – and donations to NGOs using digital tokens are also being discussed under the rules, said the second of three executives cited above on condition of anonymity.

While the rules would have covered all crypto activity by default, the big $1 billion — in meme token Shiba Inu — made by Vitalik Buterin for Covid relief in India brought special attention to the issue, the third executive said.

These rules will also cover asset tokenization firms operating in India, according to the first of the three executives. Such firms typically issue blockchain-based tokens that represent either digital or real-world values, such as tokenized land ownership.