Addressing a question during the Lok Sabha on December 4, the Minister of State for Finance Pankaj Chaudhary said that 28 different virtual digital asset service providers (VDA-SPs) including WazirX, AQN Finance, Coinswitch and CoinDCX, have registered with the Financial Intelligence Unit- India (FIU-IND)– a government organization that collects financial intelligence about offenses under the Prevention of Money Laundering Act (PMLA), 2002.
These organizations have registered with the FIU-IND under the anti-money laundering (AML) and countering the finance of terrorism (CFT) guidelines for virtual digital assets released in March this year. The minister also said that guidelines and reporting requirements apply to offshore crypto exchanges servicing the Indian market, and the process for registering such offshore crypto exchanges has been initiated. He said that appropriate action shall be initiated against those that fail to comply with the guidelines.
Why it matters:
The fact that these 28 companies registered with the FIU-IND could be seen as an attempt to establish legitimacy. Registration also assures these companies that their businesses are legally compliant and thus would not see any government action for non-compliance as mentioned by the minister.
Notably, WazirX and CoinDCX were quick to register with FIU-IND, with reports of their registration breaking back in March. With others signing on as well, it will become easier for government authorities to procure data related to crypto transactions in a systematic fashion
Who is required to register with the FIU-IND?
The AML and CFT guidelines state that anyone providing services such as–
- exchange between virtual digital assets (like cryptocurrencies) and fiat currencies (like Rupee or the Dollar)
- exchange between one or more forms of virtual digital assets
- transfer of virtual digital assets
- safekeeping or administration of virtual digital assets
- financial services related to an issuer’s offer and sale of a virtual digital asset. (note: here issuer means the person who created a cryptocurrency)
Starting March 10, 2023, anyone providing the above-mentioned services was required to register with the FIU-IND. As a part of this registration, they were required to disclose the account details of the banks/ financial institutions where they hold accounts for transactions and the money of their clients.
Key requirements that service providers are expected to meet:
Know Your Customer (KYC): Under the guidelines, crypto service providers are required to have a robust mechanism in place for complying with know-your-customer (KYC) requirements. They are expected to carry out KYC prior to onboarding customers as well as a one-time exercise in cases where KYC has not already been conducted as of the date the guidelines were issued. They must also conduct periodic KYC on existing customers at least every year.
For the purpose of KYC, the companies can rely on the Permanent Account Number (PAN) or National Identity Number and official valid documents such as a passport, driver’s license, proof of possession of an Aadhaar number, and Voter ID. At any point in time when a service provider is no longer satisfied with the true identity of the customer, a Suspicious Transaction Report (STR) has to be filed with FIU-IND.
Enhanced due diligence (EDD) norms: Service providers are required to examine as far as reasonably possible, the background and purpose of all complex, unusually large transactions, and all unusual patterns of transactions, which have no apparent economic or lawful purpose. These include:
- More frequent review of customers’ profiles/transactions
- Additional measures like gathering information from public sources
- Reasonable measures to know the customer’s source of funds, these measures must directly correspond with the assessed risk of customer and product profile
Crypto service providers are also required to apply EDD norms to transactions when entering into business relationships with Politically Exposed Persons (PEPs) as defined under the Prevention of Money Laundering (Maintenance of Records) Rules, 2005 (PMLR).
You can read our detailed report on the guidelines here.
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