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In India there continue to be problems with crypto regulation: this time some foreign exchanges, including Binance, could be affected.
In fact, their Financial Intelligence Unit (FIU) has issued compliance notices to nine offshore virtual digital assets service providers (VDA SP).
Summary
The FIU’s notices: India’s crypto regulation wants to stop Binance
Yesterday FIU published an official press release listing the nine crypto exchanges recipients of compliance notices.
I am: Binance, Kucoin, Huobi, Kraken, Gate.io, Bittrex, Bitstamp, MEXC Global, and Bitfinex.
In March, in India, the VDA SPs were included in the framework of anti-money laundering and counter-terrorism financing (AML-CFT) with the Prevention of Money Laundering Act (PML) of 2002.
In the specific case, the FIU is carrying out compliance verification activities regarding offshore entities, that is, foreign companies, and in this regard, it has issued Show Cause compliance notices to the nine aforementioned crypto exchanges.
These are not actual accusations, but a preventive activity regarding possible money laundering.
Therefore, the nine exchanges are accused only of not being compliant with the regulations in force in India, and not of having committed crimes.
For this reason, the FIU has asked the Ministry of Electronics and Informatics to block the related URLs because they would be operating illegally in the country.
At this moment it is still unknown whether the Ministry has activated the block or not.
Crypto regulation in India and the issues with Binance
India does not yet have a specific and comprehensive regulatory framework regarding cryptocurrencies, but it already has rules regarding virtual digital asset service providers (VDA SP).
In particular, according to Indian regulations, VDA SPs operating in the country are required to register with the FIU as reporting entities and comply with the set of obligations imposed by the anti-money laundering law.
As of today, 31 VDA SP have registered with the government agency, but there are still several foreign entities that provide services related to virtual digital assets without registration. In this way, they escape AML (anti-money laundering) and CFT (counter-terrorism financing) regulations.
In particular, Indian regulation imposes reporting obligations, record keeping, and other obligations on VDA SPs under the PML law.
Furthermore, these obligations are based on the actual activity carried out, regardless of the physical presence of companies in India. Therefore, any foreign exchange that wants to offer services related to virtual digital assets in India is obliged to register with the FIU, regardless of whether or not it has a presence in the country.
The nine reported exchanges offer services to Indians without having the mandatory registration.
The services provided by VDA SP regulated by Indian regulations are the exchange of virtual digital assets and legal currencies, the transfer of virtual digital assets, the custody or administration of virtual digital assets, and tools that allow control over virtual digital assets.
Binance and exchanges
At this point, the reported exchanges will have two possibilities.
They request and obtain registration with the FIU in order to continue operating legally in India.
Alternatively, they give up providing their services to the potentially immense Indian market.
To be honest, currently the Indian crypto market is not particularly significant, so it is possible that the reported exchanges may choose to abandon it. However, this does not exclude the possibility that they may request and obtain approval in the future.
One interesting thing about the FIU press release is that they report the physical locations of the exchanges, particularly Binance.
There has always been a debate about the location of the exchange, and this document reveals three different locations, one in Seychelles, one in the Cayman Islands, and one in Switzerland.
That Binance had offices in remote locations or tax havens was easily imaginable, but that it also had headquarters in Zug, the “European capital” of crypto companies, was not known at all.
Switzerland was the first major country in the world to have explicit and clear crypto regulation, and in fact, it has managed to attract many crypto companies.
The fact that Binance has chosen to open an office in Zug also seems to mean that they have every intention of complying, especially regarding the European market.