FIU steps up AML and CFT compliance for crypto exchanges in India

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As a seasoned crypto investor, I’ve witnessed firsthand the rollercoaster ride that is the cryptocurrency market. The latest news regarding India’s regulatory crackdown on unregistered cryptocurrency exchanges under AML and CFT guidelines is a welcome development in my opinion.

As a financial analyst, I would rephrase it as: I’m currently observing that Indian authorities are taking proactive measures to ensure that all cryptocurrency exchanges based in India adhere strictly to Anti-Money Laundering (AML) and Countering Financing of Terrorism (CFT) regulations. By doing so, they aim to strengthen compliance and surveillance within the rapidly expanding digital asset market.

As a financial analyst, I can tell you that the Indian Financial Intelligence Unit (FIU) has recognized Binance and KuCoin as Virtual Asset Service Providers (VASPs) within its jurisdiction. This means these two prominent offshore cryptocurrency exchanges are now authorized to operate in India under the regulatory framework for virtual assets.

The recent action is a component of a larger initiative aimed at maintaining regulatory adherence in the digital currency domain in accordance with the Prevention of Money Laundering Act (PMLA).

KuCoin has resolved past non-compliances with a penalty fee of approximately INR 41 lakhs ($41,000). Consequently, the ban on their websites in India has been lifted. In contrast, Binance is currently working on settling its obligations and is reportedly set to pay a $2 million fine based on information from sources cited by The Economic Times.

The two transactions have been recorded and are now managed by FIU-IND, a division under the Indian Ministry of Finance. This registration adheres to FIU-IND’s role in supervising the buying and selling of virtual digital assets (VDAs) within India, encompassing a total of 47 entities.

The Bharat Web3 Association (BWA), India’s leading web3 industry organization, recently organized a workshop to empower Virtual Asset Service Providers (VASPs) with the necessary knowledge and skills for ensuring compliance. This event aimed to enlighten participants about their regulatory obligations and gather valuable insights on the hurdles encountered by VASPs in this domain.

Shri Vivek Aggarwal, the Director of FIU-IND, emphasized the significance of strictly following the Anti Money Laundering and Countering Financing of Terrorism (AML/CFT) regulations.

“Aggarwal emphasized that VDA Service Providers, regardless of their location, must adhere to the Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) regulations under the Prevention of Money Laundering Act (PMLA) in India. The compliance requirements are determined by the actions taken by the VDAs, not their physical presence within the country.”

As a researcher, I had the opportunity to attend a workshop where key industry figures such as CoinDCX, WazirX, and KuCoin participated. Notably, KuCoin was the first international entity to register for this event. During the sessions, we delved into best practices for Virtual Asset Service Providers (VASPs) and explored risk assessment strategies.

Dilip Chenoy, head of the Bharat web3 Association, shared his perspectives on the consequences of these regulations.

“Although following regulations like AML and CFT comes with costs, the potential costs of non-compliance can be much greater. It’s important to note that adhering to these protocols, as required by all Standard Setting Bodies (SSBs), doesn’t impede innovation.”

As an analyst, I’ve noticed that the chairman brought up some significant obstacles, namely onerous tax laws and complications related to the Ease of Doing Business (EODB). These hurdles have been pushing startups to consider leaving the country.

“Chenoy noted that through our participation in the FIU-India Initiative for Partnership against Money Laundering and Terrorist Financing’s Financial Intelligence Unit-Public Authority and the Alliance of Reporting Entities in India for AML/CFT, known as ARIFAC, we have strengthened our communication and collaborative actions with other reporting entities such as banks and financial institutions.”

As a researcher, I discovered that collaboration involves active engagement in workshops and becoming part of industry-specific working groups, like the Financial Intelligence Unit (FIU)-led Working Group on Terror Funding (FWG-STF). This participation has significantly enhanced our ability to identify and report suspicious transactions within the sector.

Rohan Bhandari of CoinDCX gave insights on PMLA Compliance for VASPs, while Mr. Muthuswamy Iyer represented WazirX during the sessions focusing on this sector.)

According to a report by Chainalysis, India is among the world’s fastest-growing cryptocurrency economies in 2023, boasting a top adoption rate. Binance, a compliant cryptocurrency exchange with the Financial Intelligence Unit (FIU), becomes the second major foreign exchange to enter this expanding Indian market, following closely behind KuCoin.

Prior to its prohibition in January, Binance accounted for approximately 90% of all cryptocurrency transactions taking place in India. Due to the tax regulations imposed by the Indian authorities, the usage of this platform significantly increased among traders looking for alternatives.

Unregistered global cryptocurrency exchanges were estimated to cause an annual tax loss of around INR 3000 crores (approximately USD 361.45 million) in India. This significant financial leakage served as a major reason for the Financial Intelligence Unit’s decision to prohibit unregistered foreign exchanges within the country.

During the FIU registration process, Binance will now be subject to the very same regulations as local cryptocurrency trading platforms in India. Among these rules is the implementation of a 1% tax deduction at source (TDS), which has previously been enforced by KuCoin and Indian crypto exchanges.

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2024-05-15 15:10