The Financial Intelligence Unit of India (FIU IND) has issued a notice deeming nine major foreign cryptocurrency exchanges ‘illegal’. The agency, which is responsible for regulating all financial transactions in the world’s fifth-largest economy, cited failure to comply with local anti-money laundering (AML) and counter-terrorist financing (CFT) regulations as the reason for its decision.
As a result of this decision, all nine exchanges included in the notice will have their URLs blocked in the country, which could have a serious impact on their user base in India. The scope of the notice includes Binance, KuCoin, Huobi, Kraken, Gate.io, Bittrex, Bitstamp, MEXC Global, and Bitfinex.
Can foreign cryptocurrency exchanges operate in India?
The decision to block access to nine exchanges comes after India’s Prevention of Money Laundering Act, 2002 (PMLA) was amended in March 2023. As a result of the amendments, cryptocurrencies have been brought within the scope of the country’s AML and CFT regulatory framework, allowing agencies such as FIU IND to take action.
The notice states that registering with FIU IND as a reporting entity will enable foreign exchange trading to operate legally in the country. This requires the exchange to comply with cast reporting, record keeping and other bureaucratic procedures, regardless of whether it has a physical presence in India or not.
According to FIU IND, a total of 31 VDA SPs (Virtual Digital Asset Service Providers) are registered with FIU-IND to date. However, the nine exchanges cited in the notice are some of “several offshore entities” that do not register at all and provide services to what the agency calls “a significant portion of Indian users”.
Indian investors flood the foreign exchange market
India is a country whose citizens are very knowledgeable about cryptocurrencies, and local exchanges have proliferated over the past few years. However, these exchanges are subject to several taxes introduced by the government in 2022. The so-called “crypto tax” has prompted Indian investors to quickly move to foreign exchanges to boost their returns.
According to Esya, more than $3.8 billion in trading volume in India was earned through foreign exchange in the six months following the tax announcement. This volume was taken directly from local exchanges, which resulted in significant financial losses. This translates into major forex trading accounting for over 67% of India’s trading volume.
One of the many reasons why Forex trading has become an easy alternative for Indian investors is the lack of KYC regulations. In addition to allowing limited trading operations using exchanges like KuCoin and Gate, DeFi has also provided a unique opportunity for users to stay under the radar.
India loves cryptocurrency
Chainalytic’s “2023 Global Crypto Adoption Index” report ranks India first in terms of adoption, with India leading in terms of Centralized Services Value Received, Retail Centralized Services Value Received, DeFi Value Received, and Retail DeFi Value Received. It shows that there is. The only item that was not led by the country was ‘P2P exchange trading volume’.
India, a lower-middle-income country, is one of the countries leading the grassroots adoption of cryptocurrencies, following Nigeria and Ukraine. This has been a trend among developing countries who have discovered that cryptocurrencies are a more effective way to transact money both domestically and internationally.
The Indian government did not share the enthusiasm for cryptocurrencies. Because taxes in India are not the only measures taken against investment assets. Reserve Bank of India (RBI) Governor Shaktikanta Das compared it to ‘gambling’ and called for a ban earlier this year.
With India now joining countries like the United States in cryptocurrency regulation efforts, 2024 is set to be a big year for cryptocurrency technology. Most investors and cryptocurrency enthusiasts disagree because they believe a regulatory crackdown on cryptocurrencies could be its downfall. However, most experts believe this could lead to positive change and institutional adoption. Only time will tell who is right.