The Benefits, Risks, and What Users Should Know

Key Takeaways

• India’s FIU introduced stricter KYC and AML regulations for crypto platforms to curb fraud and money laundering.

• Higher costs and compliance burdens may stifle smaller platforms and innovation in the sector.

• User onboarding friction could reduce adoption, but it aligns India with global AML standards for long-term stability.

India’s crypto market is entering a more tightly regulated phase as authorities move to close long-standing gaps in oversight.

In an effort to curb fraud, money laundering, and anonymous cryptocurrency activity, the country’s Financial Intelligence Unit (FIU-IND) has introduced a new set of stricter Know Your Customer (KYC) and Anti-Money Laundering (AML) rules for crypto platforms.

While regulators say the measures bring India in line with global standards, the changes are already reshaping how exchanges operate.

The FIU has released the new KYC norms under the Prevention of Money Laundering Act (PMLA), 2002.

The rules will take effect on Jan. 8 and apply to all platforms offering crypto-related services in India.

While they build on earlier guidelines issued in March 2023, the new framework introduces significantly more requirements to address the anonymous and near-instant nature of crypto transactions.

Key changes include mandatory live selfie verification with liveness detection, geo-tagging during onboarding to capture latitude, longitude, timestamp, date, and IP address, and OTP verification for both email and mobile numbers.

Users must now provide detailed personal information, including income, occupation, bank account details, a Permanent Account Number (PAN), and a secondary identification document, such as an Aadhaar card or a passport.

Additionally, exchanges must conduct “penny-drop” bank verification, perform periodic KYC updates every six months for high-risk users and annually for others, and apply tougher due diligence to suspicious accounts.

Beyond onboarding, platforms must register with FIU-IND through the FINGate portal.

They must undergo mandatory cybersecurity audits by CERT–In–accredited professionals and appoint a designated director for AML and counter-terrorism financing compliance.

Exchanges should also conduct annual risk assessments and submit monthly suspicious transaction reports to relevant authorities.

The framework discourages exposure to Initial Coin Offerings (ICOs), Initial Token Offerings (ITOs), and anonymity-enhancing tools such as mixers or tumblers, and requires exchanges to mitigate associated risks.

Customer and transaction records must be retained for at least five years, or longer if an investigation is ongoing.

The introduction of live selfies, geo-tagging, and liveness detection significantly minimizes the risk of identity fraud, deepfakes, and anonymous transactions that could facilitate money laundering or terror financing.

By requiring more user data and periodic updates, the new rules make it more difficult for malicious actors to exploit crypto platforms.

Stricter compliance obligations also signal a move toward a more transparent and regulated environment.

This could help build trust among retail users and attract institutional participation over time.

Aligning India’s crypto sector with international AML standards supports its commitments under the Financial Action Task Force (FATF).

It could improve the country’s standing on global financial transparency metrics.

Clearer rules also remove long-standing ambiguity for compliant businesses.

The new requirements come with higher compliance costs and operational complexity.

Smaller exchanges and startups may struggle to absorb the expense of advanced verification tools, audits, and reporting infrastructure.

This could lead to consolidation or exits from the market.

Ongoing obligations such as monthly reporting and annual risk assessments could further strain less-capitalized firms and dampen innovation.

Stricter onboarding may also create friction for users.

Multi-step verification processes—such as live selfies, geo-tagging, and additional documentation—could discourage participation, particularly among users in rural areas or those with limited technical access.

This added friction may slow user growth and reduce transaction volumes in the short term.

The post India Tightens Crypto KYC Norms: The Benefits, Risks, and What Users Should Know appeared first on ccn.com.