In a recent report, the Indian Financial Intelligence Unit (FIU) revealed plans to prohibit the operation of several crypto exchanges due to noncompliance. The FIU claimed that the operations of fast-paced exchanges such as Bitfinex, Bittrex, Bitsamp, Kraken, Gate.io, Kucoin, Huobi, MEXC Global, and Binance were illegal.
In the December 29 publication, the FIU officials stated that the operation of nine crypto exchanges fails to comply with the existing law.
Indian Regulators to Suspend Operation of Nine Crypto Exchange
The FIU report demonstrated that the regulators blamed the exchanges mentioned above for failing to meet the FIU requirement to operate as regulated entities in India. Besides failing to register with FIU, the regulators noted that the nine exchanges breached India’s anti-money laundering (AML) and anti-terrorist financing regulations.
Citing the Indian Prevention of Money Laundering Act, 2002 (PMLA), the FIU reported the matter to the Ministry of Electronics and Information Technology for further legal action. The financial regulators stated that the nine crypto exchanges will cease operating in India until further notice.
In a subsequent report, the FIU stated that Virtual Digital Asset Service Providers (VDASPs) are required to register with the relevant authorities to operate in the vibrant Indian market.
India Seeks to Regulate the Crypto Sector
The regulators added that the licensed VASP complies with the PMLA regulations. A review of the FIU website demonstrated that around 31 VASPs have completed registration with the financial regulators.
With the changes in the financial landscape and the volatile nature of the crypto assets, the FIU officials noted that most Indian crypto proponents opted to transact with unregistered platforms.
The rise of noncompliance forced the regulators to step up and regulate the crypto sector. In March, the Ministry of Finance ordered the offshore exchanges to register with the FIU and align their business practices with the existing AML laws.
The ministry stated that crypto firms should meet the Know Your Customers (KYC) requirements for operating compliantly.
Regulatory Gaps in the India Crypto Sector
Earlier this month the chairman of Bharat Web3 Association (BWA) Dilip Chenoy wrote a letter to Sanjay Malhotra the secretary at the finance ministry’s department of Revenue concerning the non compliance of offshore crypto exchanges. The BWA underlined the need for the foreign exchanges to comply with the FIU requirements.
The official stated that the FIU stringent crypto measures aimed at addressing risk associated with digital assets and protecting users from exploitative business activities.
The regulators urged foreign exchange in India to register with FIU and comply with the AML regulations. The ongoing clampdowns in India mirror the regulatory action in the US. In November, US regulators filed charges against Binance for violating anti-money laundering laws.
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