India's Financial Intelligence Unit or FIU IND has issued compliance show cause notices to nine prominent global offshore Virtual Digital Assets Service Providers or VDA SPs, according to a published statement on Thursday.
The exchanges facing regulatory scrutiny are Binance (BNB/USD), Kucoin, Huobi, Kraken, Gate.io, Bittrex, Bitstamp, MEXC Global and Bitfinex. These entities are operating in the Indian market without complying with the Prevention of Money Laundering Act (PMLA), which is part of the broader Anti Money Laundering (AML) and Counter Financing of Terrorism (CFT) framework.
According to the statement, FIU IND oversees activities, including converting virtual digital assets to fiat currencies, transferring virtual digital assets and managing instruments that control or hold virtual digital assets.
Crypto platforms must register with FIU IND as reporting entities and fulfill specific obligations mandated by law. In particular, these VDA SPs are expected to report and keep records.
Compliance with this framework is solely based on the exchange's activities and is unrelated to whether the crypto exchange has a physical presence within the country.
The FIU IND Director has urged the Ministry of Electronics and Information Technology to block the URLs linked to these entities.
Until these exchanges register with FIU IND, they cannot operate digital asset services effectively in India, aligning with the expected compliance from all crypto exchanges in the region.
The outcome of this decision is anticipated to have significant implications for these platforms and their user base in India.
As of the announcement, 31 VDA service providers have registered with FIU IND. The statement highlighted that despite catering to a significant number of Indian consumers, several offshore firms were still avoiding the registration requirements.
The government suspected that many Indian traders switched to offshore international cryptocurrency platforms to evade taxes.
The country started taxing virtual currencies last year, imposing a 30 percent tax on profits and a one percent deduction for each crypto transaction.
Although India-based crypto exchanges such as a16z-backed CoinSwitch Kuber, B Capital-backed CoinDCX and the former Binance-partner WazirX maintain strict know-your-customer verifications for new users, this stringent process does not always present across many global platforms.
"Most Indian crypto exchanges are FIU registered entities and adhere with the Prevention of Money Laundering Act," said Sumit Gupta, co-founder and chief executive of CoinDCX.
"FIU IND's recent directive to offshore Virtual Digital Assets Service Providers (VDA SPs) will help mitigate risks and create a secure VDA ecosystem."
Global push for transparency and accountability in crypto market
India's crackdown on these exchanges signifies a push for greater transparency and accountability in the crypto market. Regulatory ambiguity is a primary challenge for crypto exchanges in various jurisdictions worldwide.
As India gradually becomes a significant crypto market with its expanding adoption and market size, this pushes the country to build a robust regulatory structure.
At the same time, the International Monetary Fund (IMF) and the Financial Stability Board (FSB) are also formulating crypto regulations to provide industry participants guidance.
Several digital asset service providers are also pursuing expansion beyond the U.S. into different regions. However, the possibilities for expansion are diminishing as other jurisdictions continue to tighten regulations on crypto exchanges.
India aims to actively influence the future of digital finance by prioritizing security and legality over uncontrolled growth.
This action might serve as a model for other nations dealing with the challenges of regulating the unpredictable crypto market, with a balance between innovation and regulation.