The government of India has taken a significant step towards regulating the cryptocurrency industry by issuing compliance show-cause notices to nine major offshore exchanges, including industry giants like Binance, Huobi, and Kucoin. The Finance Ministry accuses these platforms of operating illegally in India and violating the Prevention of Money Laundering Act (PMLA) of 2002.
The notices demand an explanation for the non-compliance of these exchanges with established regulations. Simultaneously, the ministry has urged the Information Technology Ministry to block the URLs of these exchanges, citing their illegal operations within the country. This move underscores India’s commitment to bringing offshore crypto exchanges under regulatory oversight, signaling a significant shift in the country’s approach toward monitoring and controlling digital asset transactions.
The lack of a specified timeframe or consequences in the issued notices has left the crypto community and the exchanges in question in suspense, with potentially far-reaching implications for their operations in the Indian market.
The Finance Ministry also emphasizes the necessity for virtual digital asset (VDA) service providers to register with the Financial Intelligence Unit-India (FIU-IND). This includes activities such as the exchange between virtual digital assets and fiat currencies, with obligations extending beyond physical presence in India.
It is reported that 31 service providers have registered with the FIU-IND, but several offshore entities serving a substantial Indian user base have failed to comply with the Anti-Money Laundering (AML) and Counter Financing of Terrorism (CFT) frameworks.
One of the reasons for the government’s crackdown on offshore exchanges is the migration of Indian users to foreign platforms due to the implementation of a 1% tax on crypto transactions on local exchanges. Between February and July 2022, three to five million Indian users shifted to offshore exchanges, causing potential revenue loss for the government.
Overall, the compliance show-cause notices issued by the Finance Ministry are a significant development in India’s efforts to regulate the cryptocurrency industry and bring offshore exchanges under regulatory oversight. The move also highlights the impact of regulatory measures on user behavior and the operations of crypto exchanges within the Indian market.