India has intensified its regulatory framework for the cryptocurrency market to mitigate money laundering and terrorism financing risks. The country’s financial intelligence authority introduced new regulations for cryptocurrency exchanges, which took effect on January 8. These rules mandate the technical verification of users’ identities and aim to record the geographical and temporal traces of transactions in detail. This initiative seeks to increase the transparency of cryptocurrency transactions and detect illegal financial flows at an early stage.
Stringent Identity and Monitoring Obligations for Crypto Exchanges
The new rules significantly expand the customer identification processes of cryptocurrency exchanges. It is no longer sufficient to rely solely on a tax identification number; live selfie verification has become mandatory. Users must prove liveness through movements like blinking during the selfie. Additionally, their geographical coordinates, date-time information, and IP address are recorded in detail.
Exchanges are required to collect additional documents such as passports, driver’s licenses, Aadhaar identity cards, or voter cards. Mobile numbers and email addresses are verified using one-time passwords. The ownership of bank accounts is confirmed through a method called “penny-drop,” involving a refund transaction of 1 rupee.
For high-risk customer profiles, stricter control mechanisms are anticipated. Individuals linked to tax havens, accounts associated with jurisdictions under the Financial Action Task Force (FATF) framework, politically exposed persons, and certain civil society structures undergo detailed reviews every six months. Platforms are also mandated to retain all user data for at least five years.
India’s Cautious Stance on Cryptocurrency
The regulations are not limited to identity processes. Cryptocurrency exchanges are prohibited from supporting activities such as Initial Coin Offerings (ICOs) or Initial Token Offerings (ITOs). According to authorities, these fundraising models lack sufficient economic justification and pose complex money laundering risks. Similarly, the usage of tools like mixers or tumblers that obscure transaction traces is entirely banned.
All cryptocurrency service providers must register with the Financial Intelligence Unit, report suspicious transactions, and adhere to regular reporting obligations. The rules aim to strengthen centralized supervision in the battle against financial crime.
India maintains a cautious line in its approach to crypto assets. Cryptocurrencies are defined as “virtual digital assets” under the nation’s Income Tax Act. Citizens can buy and sell these assets through registered platforms but are still prohibited from using them as a means of payment or an official currency.
