India Tightens Grip on Crypto: Crypto Exchanges Under AML-CFT Scrutiny

• India’s AML-CFT framework now includes Virtual Digital Assets Service Providers under the PML Act, 2002.
• Nine major offshore crypto exchanges received Show Cause Notices from India’s FIU for non-compliance.
• Despite regulatory challenges, 31 VDA SPs have registered with FIU IND, indicating a move toward compliance.

India has brought Virtual Digital Assets Service Providers (VDA SPs) under the stringent Anti Money Laundering/Counter Financing of Terrorism (AML-CFT) framework as of March 2023, according to the provisions of the Prevention of Money Laundering Act (PML) Act, 2002. This move signifies a major shift in the nation’s approach to monitoring and regulating the burgeoning cryptocurrency market.

As part of this compliance crackdown, the Financial Intelligence Unit India (FIU IND) has issued Show Cause Notices to nine prominent offshore VDA SPs, including well-known names like Binance, KuCoin, Huobi, and Kraken, under Section 13 of the PMLA. These notices are a direct result of these entities operating in India without adhering to the necessary PML Act provisions.

Further intensifying its regulatory stance, the Director of FIU IND has recommended the Secretary of the Ministry of Electronics and Information Technology block the URLs of these non-compliant entities. This move is aimed at curbing the illegal operation of offshore VDA SPs that, despite catering to a substantial Indian user base, have avoided registration and compliance with India’s AML and CFT framework.

Despite these regulatory challenges, it’s noteworthy that 31 VDA SPs have already registered with FIU IND, showcasing a growing trend of compliance within the industry. However, Lark Davis, a crypto influencer, voiced criticism over the government’s actions to block access to exchanges like Binance and Kraken, calling it “stupid” and indicative of a misunderstanding of the crypto landscape.

The future of crypto exchanges, particularly in the Indian market, is poised for evolution with a positive trajectory. As regulatory frameworks become more defined and exchanges adapt to compliance requirements, the industry is expected to mature, offering safer and more reliable services for users worldwide.