The move comes amid the government’s efforts to draft a comprehensive bill on crypto regulation that is expected to be tabled in the parliament soon.
According to a notice issued by the finance ministry on March 8, 2023, crypto firms such as exchanges, custodians and intermediaries are now classified as reporting entities under the Prevention of Money Laundering Act (PMLA), 2002. This means that they have to comply with various obligations such as verifying the identity of their customers, maintaining records of transactions, reporting suspicious activities and conducting due diligence.
The notice also stated that crypto firms have to appoint a principal officer and a designated director who will be responsible for ensuring compliance with the AML rules and reporting to the Financial Intelligence Unit-India (FIU-IND), which is the nodal agency for receiving and analyzing financial information.
The notice said that the AML rules are applicable to crypto firms with immediate effect and that any violation of the rules will attract penal action under the PMLA. The notice also clarified that the AML rules are not intended to confer any legitimacy or recognition to crypto assets or activities.
The AML rules are seen as a positive development by some experts and industry players, who believe that they will bring more transparency and accountability to the crypto sector and help prevent illicit activities such as money laundering, terror financing and tax evasion. They also hope that the AML rules will pave the way for more clarity and certainty on the legal status and taxation of crypto assets in India.
Sharat Chandra, co-founder of India Blockchain Forum, said that the AML rules will help crypto firms comply with global standards and best practices. He also said that the AML rules will help crypto firms gain more trust and credibility from their customers, regulators and investors.
Tanvi Ratna, founder and CEO of Policy 4.0, a policy advisory firm for emerging technologies, said that the AML rules are a welcome step towards formalizing the crypto sector in India. She also said that the AML rules will help India align with other countries that have already implemented similar regulations for crypto firms.
However, some challenges and uncertainties remain for the crypto sector in India. The government is yet to finalize its stance on whether to ban or regulate crypto assets and how to classify them for taxation purposes. The government is also yet to address other issues such as consumer protection, data privacy and cyber security for crypto users.
The government has formed an inter-ministerial committee (IMC) to study various aspects of crypto regulation and draft a bill on the same. The IMC has reportedly recommended a complete ban on private cryptocurrencies and a framework for creating a central bank digital currency (CBDC). However, the government has not officially endorsed or rejected the IMC’s report and has said that it will take a calibrated approach towards crypto regulation.
The crypto sector in India is eagerly awaiting the government’s final decision on the matter, which could have a significant impact on its growth and innovation potential. The crypto sector in India is estimated to have over 10 million users and over 300 startups, according to industry estimates.