India has further toughened its regulatory framework in a bid to limit money laundering and terrorist financing risks in the cryptocurrency market. The country’s financial intelligence authority implemented new rules on January 8 that expand identity verification and monitoring obligations for cryptocurrency exchanges. While the regulations require users’ identities to be confirmed by technical methods, they aim to record the geographical and temporal traces of transactions in detail. Thus, it is aimed to increase the transparency of cryptocurrency transactions and detect illegal financial flows at an early stage.
Strict Identity and Monitoring Obligations for Cryptocurrency Exchanges
The new rules significantly expand the customer identification processes of cryptocurrency exchanges. While it is not deemed sufficient for users to just provide their tax identification number, live selfie verification has become mandatory. Proof of liveliness is sought through movements such as blinking during selfies. At the same time, the user’s geographical coordinates, date-time information and IP address are recorded in detail.
Exchanges are responsible for collecting additional documents such as passport, driving license, Aadhaar identity card or voter card. Mobile numbers and e-mail addresses are verified through one-time passwords. The ownership of the bank account by the user is confirmed by the method called “penny-drop”. In this process, a refundable transaction of 1 rupee is carried out.
Stricter control mechanisms are foreseen for high-risk customer profiles. Individuals linked to tax havens, accounts associated with FATF jurisdictions, politically sensitive individuals and certain civil society structures are subject to detailed scrutiny every six months. Platforms also have to keep all user data for at least five years.
India’s Distance from Crypto
Regulations are not limited to identity processes only. Cryptocurrency exchanges are prohibited from supporting activities such as initial coin offering (ICO) or initial token sale (ITO). According to authorities, such funding models do not have sufficient economic justification and pose complex money laundering risks. Similarly, the use of tools such as mixers or tumblers that hide traces of processing is also completely prohibited.
All cryptocurrency service providers are required to register with the Financial Intelligence Unit, report suspicious transactions and fulfill regular reporting obligations. The rules aim to strengthen central control in the fight against financial crimes.
India continues to follow a cautious line in its approach to crypto assets. Cryptocurrencies are defined as “virtual digital assets” under the country’s Income Tax Law. Citizens can buy and sell these assets through registered platforms, but they remain prohibited from using them as means of payment or official currency.
