India Tightens Grip: 49 Crypto Exchanges Now Under Anti-Money Laundering Scrutiny

India's financial regulators just pulled crypto into the compliance arena—hard. The move slaps anti-money laundering (AML) requirements on nearly four dozen digital asset platforms, forcing them to play by the same rules as traditional banks.

The Compliance Hammer Drops

Forget the wild west. The directive mandates rigorous KYC checks, transaction monitoring, and reporting of suspicious activity. It's a formal recognition of crypto's scale in the economy, paired with a stark warning: operate in the light or get shut down.

Market Maturity or Regulatory Overreach?

Proponents hail it as a necessary step for legitimacy—a signal that could lure institutional capital. Critics see another layer of bureaucracy that stifles innovation and pushes activity to peer-to-peer channels. After all, nothing says 'secure financial system' like forcing a decentralized technology into a centralized reporting box.

The new rules create a stark choice for the targeted exchanges: invest heavily in compliance infrastructure or exit the market. For investors, it promises cleaner on-ramps but potentially higher costs and surveillance. One thing's clear—the era of operating in a regulatory gray area is over. Whether this kills the vibe or finally brings in the big money remains the billion-rupee question. Typical finance—always finding a way to tax progress with paperwork.

FIU flags criminal crypto use through transaction monitoring

The central analysis of the FIU report is based on Suspicious Transaction Reports (STRs) submitted by registered exchanges. These reports provide the government with the exact information required to understand how cryptocurrency is being used and abused.

According to the FIU, cryptocurrency serves as a tool for promoting innovation, investment, and financial inclusion. However, the bad largely outweighs the good.

This report also highlights several high-risk activities associated with cryptocurrency use, including money transfers reminiscent of the informal exchange system in countries bordering India and Pakistan, online illegal gambling, organized large-scale criminal fraud cases, and adult content platforms that are clearly unlawful.

In one case, researchers traced the movements of the cryptocurrency payments through digital wallets to an illegal adult website. This is a concrete example of how blockchain transactions, when properly managed, can be tracked and thus verified.

For example, under the current rules, registered exchanges must adhere to specific procedural standards, including identity verification of users, identification of the actual owners of crypto wallets, tracking transfers from exchange-based wallets to private wallets, and reporting suspicious behavior to the FIU. 

There are consequences for non-compliance. FIU, in this regard, levied penalties on crypto platforms that did not meet compliance standards in the previous fiscal year. 

India blocks offshore exchanges as crypto oversight tightens

There’s also an obvious division in India’s crypto market between those that comply with the law and those that don’t. Binance, Coinbase, and Mudrex — major offshore entities that have registered with the FIU — are approved for India. 

However, other foreign stations refused to register, prompting the FIU to disconnect 25 offshore cryptocurrency exchanges that failed to comply with India’s AML policies. They are stations such as BitMEX, Lbank, and Phemex. 

Indian users are barred from using these platforms until they register and report the transactions. Such an enforcement action has sharply diverted India’s retail crypto trading into a narrow orbit of regulated exchanges. These platforms are then required to appoint a director and a principal officer, who is responsible for communicating with government agencies.

The executive committee said it didn’t want to close all windows on digital assets. Instead, it pledged that cryptocurrency could only be traded under transparent law systems where close supervision was maintained.

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