India’s FIU Clamps Down: New KYC Regime Targets Crypto Terrorism Financing & Money Laundering
India's Financial Intelligence Unit just drew a hard line in the digital sand. The agency's new KYC framework for crypto users isn't a suggestion—it's a direct assault on the shadow economy operating through digital assets.
The Compliance Hammer Drops
Forget anonymous wallets and peer-to-peer loopholes. The FIU's mandate forces all Virtual Asset Service Providers (VASPs) operating in India to implement rigorous customer identification protocols. Every transaction now leaves a forensic footprint. The goal? To sever the financial arteries of terrorist networks and organized crime that have exploited crypto's pseudo-anonymity.
Tracking the Untraceable
The regime demands real-name verification linked to national IDs, continuous transaction monitoring, and mandatory reporting of suspicious activity. It transforms crypto exchanges from mere trading platforms into frontline compliance officers. The message to bad actors is clear: your on-ramp just became a checkpoint.
The Global Ripple Effect
India's move signals a broader shift. As a major economy, its regulatory stance pressures other nations to follow suit or risk becoming safe havens for illicit flows. This isn't just domestic policy; it's a strategic play in the global fight against financial crime, setting a precedent that could redefine cross-border crypto oversight.
For the crypto industry, it's a painful but necessary growing up. The 'wild west' era is closing. The new chapter demands transparency, accountability, and a stark choice: comply or get locked out. After all, what's the point of decentralized finance if it just becomes a more efficient way to fund centralized corruption?
India’s FIU releases new guidelines for onboarding new users
According to the FIU, Indian exchanges are banned from carrying out mixing services, with the agency noting that transactions linked to anonymous tokens should also not be facilitated. The new guidelines released by the FIU, a body that functions under the Union Finance Ministry, have been reviewed by the PTI.
The PTI mentioned that the updated regulations WOULD help India tackle terrorism financing and money laundering using digital assets.
In addition, the agency has also updated reporting guidelines for exchanges. The update comes about three years after the first set of rules was published in March 2023. The FIU acts as the single-point regulator for crypto exchanges (reporting platforms or VDA service providers) operating in India under the provisions of the Prevention of Money Laundering Act (PMLA).
The updated guidelines mean that all crypto exchanges operating within the country must register with the FIU as reporting entities and submit regular reports on transactions that they consider suspicious. They are also charged with maintaining the records of their customers to identify and combat illicit funding and proliferation financing risks associated with crypto assets. This doesn’t mean that digital assets are being recognized as legal tender, but for the payment of taxes.
FIU shares update on crypto industry guidelines
According to the guidelines, exchanges have been mandated to ask their customers to submit the Permanent Account Number (PAN), a selfie with license detections, latitude and longitude coordinates of the onboarding location, with date and timestamp.
In addition, users are required to also submit their IP address as part of what the agency calls the “client due diligence” measures. Exchanges have also been asked to ensure that clients whose credentials were submitted are the ones accessing their accounts at all times.
“The authenticity of such access and personal presence shall be established by capturing a live photograph of the client and employing liveliness detection technology to verify the client’s physical presence,” it said.
Liveness detection is done by a specified software that is being used for several legal purposes in India, such as generating a life certificate for pensioners. The software requires them to blink to establish that they are alive and authentic.
The exchanges have also been asked to collect another identity and address document of the client, which includes a driving license, proof of possession of Aadhaar, passport, voter ID, and driving license. In addition, they are also required to verify their mobile number and email using a one-time password (OTP).
Also, exchanges are mandated to carry out a KYC update for customers that they deem to be high risk every six months, while updating for others after a year.
In terms of ICOs/ITOs, the Indian agency mentioned that the activities present increased and complex money laundering and terrorism financing risks. It noted that they lack a justified economic rationale. The agency also mentioned that anonymous tokens or crypto mixers that are designed to conceal the origin of funds are also prohibited, warning exchanges to ensure that they do not carry out such transactions.
ing-probe/”>complex money laundering and terrorism financing risks. It noted that they lack a justified economic rationale. The agency also mentioned that anonymous tokens or crypto mixers that are designed to conceal the origin of funds are also prohibited, warning exchanges to ensure that they do not carry out such transactions.
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