In the first step towards regulating cryptocurrency, the government said on March 7 that money laundering laws will apply to crypto trading, weeks after Finance Minister Nirmala Sitharaman said the regulation would be a topic of discussion at G20.
In a notification, the Ministry of Finance said “exchange between virtual digital assets and fiat currencies, exchange between one or more forms of virtual digital assets, [and] transfer of virtual digital assets” will be covered under money laundering laws.
Additionally, the notification pointed out that “safekeeping or administration of virtual digital assets or instruments enabling control over virtual digital assets and participation in and provision of financial services related to an issuer’s offer and sale of a virtual digital asset” will also be covered under the law.
In simple terms, the move to bring the sector under the Prevention of Money Laundering Act (PMLA) means companies now have to perform and report details such as — Know Your Transactions (KYT), Transactions Monitoring and Reporting, Address Screening and Reporting, Suspicious Activities Reports and Suspicious Transactions Reports.
Prashant Garg, EY India, Technology Partner, told News18 that the responsibility of maintaining transparency, identity, and following AML regulations is on crypto exchanges.
“Globally, banks are severing ties with exchanges, putting a strain on exchanges and forcing them to look for an alternative model. Crypto transactions continue to lack transparency and trial. This move brings responsibility on the crypto markets to bring transparency to trading,” he said.
Ashish Singhal, co-founder of CoinSwitch, called it a positive step and wrote on Twitter: “This will strengthen our collective efforts to prevent VDAs from being misused by bad actors.”
However, CoinSwitch’s spokesperson stated that the new rules are in place to prevent cryptocurrency misuse, such as money laundering, but they do not prevent users from converting crypto to INR on the CoinSwitch app or CoinSwitch PRO platforms on a regular, KYC-verified basis.
“We took a conscious decision in 2021 to limit crypto movement within our KYC-compliant ecosystem to ensure transparency and compliance with the laws of the land,” he added.
Rajagopal Menon, Vice President at WazirX, told News18: “We welcome the new notification regarding anti-money laundering (AML) reporting to FIU for crypto assets, which aligns with our existing policies and practices”.
According to him, this is the first of many steps towards regulation and WazirX is committed to complying with all relevant regulations and guidelines.
“We have always taken a proactive approach to AML and know your customer (KYC) compliance and we will continue to work closely with regulators and law enforcement agencies. We remain dedicated to providing a safe, transparent, and seamless platform for our users to trade and invest in crypto assets,” he noted.
Punit Agarwal, Founder of KoinX, called the move a significant step forward in providing regulatory clarity for the crypto industry in India. He believes that by bringing crypto businesses under the ambit of the PMLA, the government is taking measures to ensure that the industry can operate in a regulated environment.
He said: “This will not only promote transparency but also aid in identifying and curbing the activities of bad actors within the industry. The collective efforts of the industry to prevent the misuse of crypto through money laundering and other illegal activities will also be strengthened as a result.”
Additionally, he believes that it will enhance the legitimacy of the crypto industry in the eyes of the public and is also a positive step towards establishing a robust regulatory framework that fosters growth while ensuring accountability and security.
Manavendra Mishra, Partner, Khaitan & Co., said it can be seen in a positive light as wider acceptance of virtual digital assets after the amendment in the Income Tax Act last year.
“It remains to be seen if the interpretation will be limited to transactions being carried out as business or also to P2P traders. Exchanges, individuals doing such transactions as business are likely to come under the purview. In the background of FTX and other instances wherein mass wipeout of value has happened, this seems to regularise and regulate digital assets further,” he said.
Dileep Seinberg, Founder & CEO, MuffinPay, stated that following PMLA guidelines, custodians, administrators, and VDA exchanges that handle customer funds are now required to report questionable transactions just like banks. Additionally, he said that in contrast, enforcement agencies could directly rely on this amendment in the absence of regulators.
“This initiative will strengthen our collaborative efforts to prevent malicious actors from abusing VDAs,” he added.
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