India has moved to tighten oversight of cryptocurrency platforms, with the Financial Intelligence Unit introducing stricter identity and monitoring requirements aimed at curbing illicit activity.
Key Takeaways:
India now requires live identity checks and stricter KYC for crypto exchanges. Platforms must collect PAN, location data and verified bank details from users. Exchanges say the rules clarify compliance and reduce enforcement uncertainty.Under updated guidelines issued on January 8, crypto exchanges are now formally classified as Virtual Digital Asset (VDA) service providers and must adopt enhanced Anti-Money Laundering (AML) and Know Your Customer (KYC) procedures.
India Mandates Live Identity Checks for Crypto Platforms
The new rules require platforms to go beyond basic document uploads during onboarding.
Reporting entities must carry out live identity verification and implement stronger Client Due Diligence (CDD) processes, reflecting concerns about the speed and pseudonymous nature of crypto transactions.
Regulators said these features increase the risk of misuse for money laundering, terror financing and proliferation financing if left unchecked.
Under the guidelines, exchanges must identify customers using reliable and independent sources and collect a broader set of technical identifiers.
These include IP addresses with timestamps, geolocation data, device IDs, wallet addresses and transaction hashes, all of which are intended to support verification, monitoring and risk assessment.
Platforms are also required to mandatorily collect and verify a customer’s Permanent Account Number (PAN) before allowing any VDA-related activity.
Bank account verification has also been tightened. Exchanges must use a “penny-drop” mechanism to confirm ownership and operational status of linked bank accounts.
In addition to PAN details, users must submit a secondary government-issued ID such as a passport, Aadhaar card or voter ID, along with one-time password verification for registered email addresses and phone numbers.
Industry participants largely welcomed the move. Nischal Shetty, founder of WazirX, said in a comment shared with Cryptonews.com that measures such as selfie-based verification and penny-drop checks were already part of onboarding at major exchanges.
He added that the updated framework removes ambiguity and reduces the risk of uneven enforcement across platforms.
India Moves to Discourage ICOs Under Tighter Crypto Compliance Rules
The FIU also took aim at fundraising activity, saying the new framework is designed to strongly discourage Initial Coin Offerings and Initial Token Offerings, citing concerns over economic rationale, disclosure standards and risk mitigation.
Enhanced due diligence will be mandatory for high-risk transactions, politically exposed persons, non-profit organizations and clients linked to jurisdictions on the Financial Action Task Force grey or black lists.
Exchanges must also deploy tools to detect the use of mixers, tumblers and other anonymity-enhancing services and block such transactions where identified.
Records of customer identities and transaction data must be retained for at least five years or until any investigation is concluded.
Last week, Indian tax officials renewed concerns over cryptocurrency activity, warning that the growing use of digital assets could undermine the country’s ability to enforce tax rules effectively.
The caution was raised by the Income Tax Department (ITD), which operates under the Central Board of Direct Taxes, during a recent parliamentary standing committee on finance.
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