Breaking: FIU Tightens Rules for Indian Crypto Exchange Platforms - Regulatory Squeeze Intensifies

India's Financial Intelligence Unit just dropped the hammer—and crypto exchanges are scrambling.

The Compliance Crunch

New FIU directives are slamming the door on loose operational standards. Platforms now face stricter transaction monitoring, enhanced KYC waterfalls, and real-time reporting mandates that leave zero wiggle room. It’s a classic regulatory pivot: first they watch, then they squeeze.

Exchange Survival Mode

Local exchanges are overhauling compliance engines overnight. Some are fast-tracing tech stack upgrades; others are staring down existential integration costs. The message is clear—adapt to the FIU’s rulebook or get locked out of the subcontinent’s vast user base. Liquidity could thin as smaller players buckle under the load.

Investor Whiplash

Traders are caught between short-term friction and long-term legitimacy. Withdrawal delays and deeper verification steps are the new normal—a tedious tax for operating in a market that regulators still view with deep suspicion. Yet, every compliance hurdle cleared inches the sector closer to mainstream acceptance. It’s the financial world’s favorite paradox: suffocate it with rules until it’s respectable enough to tax properly.

The Global Ripple

India’s move doesn’t happen in a vacuum. Watch for other emerging markets to mirror this playbook—tightening controls while eyeing the potential revenue stream. For crypto, it’s another growth spurt through regulatory pain. The industry keeps betting that today’s red tape is just tomorrow’s runway.

India is stepping up regulation of the crypto sector, with 49 cryptocurrency exchanges officially registered with the Financial Intelligence Unit (FIU) during the 2024–25 financial year. This move is part of the government’s effort to bring digital asset activity under stricter anti-money laundering (AML) and counter-terror financing controls, as concerns rise over crypto misuse in criminal activities.

FIU Review Reveals High-Risk Crypto Activity

According to the FIU report for the 2024–25 financial year, accessed by PTI, the registration follows a review of Suspicious Transaction Reports (STRs) submitted by crypto platforms. The FIU found that crypto funds were repeatedly used for high-risk activities, including scams, fraud, gambling networks, unaccounted transfers, and peer-to-peer abuse. Some cases were even linked to darknet services, terror financing, and child sexual abuse material, highlighting how crypto anonymity can be exploited if left unregulated.

Out of the 49 registered platforms, 45 are based in India, while four operate overseas. Unlike other countries where multiple agencies oversee crypto, India has appointed the FIU, under the Ministry of Finance, as the single authority monitoring exchanges.

49 crypto exchanges are already FIU registered, and 100s more that are not.

The crypto market in India is far more competitive than most people think.

IMO, Healthy competition is good for the ecosystem as it promotes innovationhttps://t.co/5BAS86eBEh

Crypto Exchanges in India Must Follow AML Rules

Crypto exchanges in India are legally classified as VIRTUAL Digital Asset (VDA) Service Providers and have been under the Prevention of Money Laundering Act (PMLA) since 2023. Exchanges must:

• Submit Suspicious Transaction Reports (STRs)
  
• Identify the owners of wallets
  
• Track token fundraising activities like IPOs
  
• Monitor transfers between hosted and un-hosted wallets
  

After registration, exchanges also need to:

• Disclose their banking relationships
  
• Appoint compliance officers
  
• Conduct internal audits
  
• Follow risk-based customer checks
  
• Screen transactions for sanctions and perform regular risk assessments
  

All this information must be shared with the FIU.

FIU Enforcement and Crypto Penalties in India

The FIU actively enforces compliance. During FY 2024–25, crypto platforms failing to meet AML obligations were fined a total of ₹28 crore. The FIU also identified regional transaction hotspots and digital assets commonly linked to illicit activity, strengthening the government’s intelligence and monitoring framework.

Strengthening Crypto Regulations in India

India recognizes the potential of crypto to transform finance and wealth creation but remains cautious about the risks posed by fast transactions, global reach, and pseudonymous transfers. Alongside AML measures, the government has reinforced oversight through taxation rules and withholding tax provisions under the Income Tax Act.