FIU Issue Show-Cause Notice to 9 Offshore Crypto Platforms for Indian Regulation Compliance

Key Takeaways:

• Regulatory Scrutiny: The FIU, operating under the Finance Ministry, issued notices to nine offshore crypto exchanges for allegedly operating unlawfully within India.
• Non-Compliance Action: The notices, issued under the Anti Money Laundering/Counter Financing of Terrorism (AML-CFT) framework emphasize the need for compliance with Indian regulations. Offshore entities failed to register and meet prescribed norms, prompting regulatory action.
• Reporting Obligations: These entities are mandated to comply with reporting obligations similar to those of traditional financial institutions, including reporting suspicious activities and maintaining transparency in financial transactions.
• MEITY Involvement: The FIU sought MEITY’s intervention to block the websites of these non-compliant offshore crypto service providers. This move aims to prevent their continued operations in India until regulatory compliance is met.
• Indian Crypto Regulatory Landscape: The actions by the FIU highlight India’s evolving regulatory stance in the crypto market. Offshore entities offering crypto services to Indian users are now subject to stringent compliance, regardless of physical presence, indicating the government’s commitment to regulating the sector.

The Financial Intelligence Unit (FIU), operating under the Finance Ministry and responsible for monitoring suspicious financial transactions, has taken decisive action against several crypto exchanges. The FIU recently issued notices to nine crypto exchanges for allegedly operating unlawfully within India through offshore entities.

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The FIU, acting under the ambit of the Anti Money Laundering/Counter Financing of Terrorism (AML-CFT) framework established by the Prevention of Money Laundering Act (PMLA) in 2002, emphasized the need for compliance with these regulations.

In a press statement, the FIU explicitly pointed out that despite including Virtual Digital Assets Service Providers (VDAs) within the AML-CFT framework in March 2023, these offshore entities failed to register and adhere to the prescribed norms. The FIU underscored that compliance with Indian regulations is mandatory for entities offering crypto services to Indian users, regardless of their physical presence within the country.

Read More: Crypto Tax Guide in India

The notices issued under Section 13 of the PMLA, mandate these entities to adhere to the reporting obligations laid out by the government. Similar to traditional banking institutions, these obligations include reporting suspicious activities and maintaining transparency in financial transactions.

Moreover, in a move aimed at curbing the operations of these non-compliant entities, the FIU has reached out to the Ministry of Electronics and Information Technology (MEITY). The FIU has urged MEITY to block the websites of these offshore crypto service providers, seeking to prevent their continued operations in India until they comply with regulatory requirements.

The FIU’s action highlights the intensifying regulatory focus on the crypto space within India. Despite the absence of a physical presence, offshore entities providing crypto services to Indian users are now subject to stringent regulatory compliance. This move by the FIU emphasizes the criticality of adhering to anti-money laundering and counter-financing of terrorism frameworks for all entities involved in the crypto market.

The crypto landscape in India has witnessed dynamic shifts in regulatory oversight, aiming to ensure transparency and accountability in the rapidly evolving digital asset sector. With the sector’s immense potential and growing user base in India, regulatory bodies are actively pursuing measures to bring offshore crypto service providers within the purview of Indian regulations.

This development marks a pivotal moment in India’s crypto regulatory journey, signifying the government’s commitment to establishing a secure and compliant ecosystem for crypto operations in India. The FIU’s actions serve as a reminder to all crypto service providers, including offshore entities, of the imperative to align with Indian regulatory frameworks to operate lawfully within the nation’s growing crypto market.

Additional Read: CoinDCX is Now FIU-Registered Entity

Source: Press Information Bureau / The Hindu