India, in a significant regulatory maneuver, has stepped up its scrutiny of major cryptocurrency exchanges, including global giants like Binance and Huobi. This development is a direct consequence of the application of the AML-CFT (Anti-Money Laundering and Counter-Financing of Terrorism) framework by India’s Financial Intelligence Unit (FIU). In March 2023, this regulatory framework was extended to include offshore virtual digital asset service providers (VDA SPs). Thus, significantly impacting the dynamics of the cryptocurrency market in India.

The UIF’s recent actions have placed nine such entities, all operating without registration as required by the Prevention of Money Laundering Act (PMLA), under a regulatory microscope. These exchanges, which have a substantial user base in India, have been served notices to explain their non-compliance with the set norms. In case of unsatisfactory response, the FIU may take drastic measures, including blocking access to these websites in India. This would considerably affect its user base in the country.

Central PMLA Legislation for Cryptocurrency Control

India’s relationship with cryptocurrencies and exchanges like Binance has become complex and evolving. There have been moments of outright rejection, as evidenced by the ban imposed by the Reserve Bank of India (RBI) in 2018 on banking transactions with cryptocurrency entities. This ban was revoked by the Supreme Court in 2020, but left a legacy of regulatory ambiguity. Recently, at the G-20 summit, India demonstrated an inclination towards more sophisticated regulation in the cryptocurrency sector, seeking to align with global standards.

The country is currently developing a five-point legislative framework for crypto, influenced by recommendations from organizations such as the International Monetary Fund (IMF) and the Financial Stability Board (FSB). This indicates a trend towards more structured and perhaps more permissive regulation, where cryptocurrency exchanges would operate under clear guidelines.

Additionally, India’s Ministry of Finance ruled in March that cryptocurrency companies must register with the UIF and adhere to procedures under the PMLA. This includes implementing identity verification processes such as Know Your Customer (KYC). The UIF emphasized that the registration obligation depends on the activity of the companies rather than their physical presence in India.

This recent situation highlights an effort by India to balance innovation in the cryptocurrency sector with the need for regulatory security. The decision to tightly regulate foreign exchanges reflects a commitment to protecting against illicit activities. At the same time, it still remains open to the economic and technological potential of cryptocurrencies.


The views and opinions expressed by the author, or anyone mentioned in this article, are for informational purposes only and do not constitute financial, investment or other advice. Investing or trading cryptocurrencies carries a risk of financial loss.


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