All Crypto Companies in India Must Now KYC Users

“KYC norms are no longer a best practice but a legal obligation,” one tech lawyer said about India’s latest directive for the crypto industry

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Nirmala Sitharaman, Finance Minister of India | Shutterstock.com/PradeepGaurs, modified by Blockworks

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India’s finance ministry announced Tuesday that it has applied money laundering provisions on crypto companies, forcing them to immediately align with the general finance sector.

A notification from the ministry was light on details, but showed the legislation has been applied to crypto trading, transfers of crypto, safekeeping or administration of crypto and provision of crypto.

Essentially, from now, crypto businesses will be required to supply know-your-customer (KYC) details in case officials ask for this information.

All crypto businesses will now be reporting entities to the Indian government, meaning businesses will be legally required to report suspicious transactions to the Financial Intelligence Unit. 

The directive follows calls from India’s IT ministry last year, encouraging crypto companies to keep five years worth of user data, including personal “Know-Your-Customer” information, to stay on regulators’ good sides.

Jaideep Reddy, counsel at Trilegal, broke down what the most recent move means for crypto businesses: “Technically the notification appears to come into effect immediately,” Reddy told Blockworks, and pointed out a shortcoming with the sudden announcement.

“A transition provision specifying a period within which compliance was to be achieved would have been ideal. However, one would expect that enforcement authorities would provide reasonable time to covered entities to become compliant.”

Reddy separately elaborated in a Twitter thread that crypto businesses will now be required to maintain reporting standards and KYC/AML norms to sync with other entities like banks, securities intermediaries and payment system operators. 

“In other words, KYC norms are no longer a best practice but a legal obligation,” he tweeted.

The move has been welcomed by some parts of the industry, which say it gives businesses some level of clarity as to what types of checks the government wants.

Reports emerged last year that crypto exchanges in India were being investigated by the Enforcement Directorate, which is responsible for fighting economic crime. WazirX, Coinswitch Kuber, CoinDCX and Zebpay were among exchanges approached by the directorate.

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The crypto landscape in India hasn’t been totally friendly. The government decided to retain the 30% tax imposed on crypto profits, on top of a 1% tax deducted at source (TDS), in its latest budget.

Offenders or platforms that don’t adhere to the TDS will be penalized under an amendment to Section 271C of the Income Tax Act. They could either be fined or jailed for terms lasting between 3 months to 7 years.

In October, the Financial Action Task Force (FATF) pushed for member nations to implement a “travel rule” that would track crypto transactions in order to block terrorist financing and other illegal activities. It isn’t clear yet whether India intends to enforce the travel rule.


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