Anti-Money Laundering Law Could Weigh On Cryptos

Experts say the move will increase their compliance burden, and may even harm customers as they will have to monitor transactions, maintain records and report suspicious activities, as banks do .

VDAs, which include assets such as cryptocurrencies and non-fungible tokens (NFTs), have been losing value for almost a year due to the closure of major exchanges amid a global recession. This has affected trading volumes, directly affecting the revenue of exchanges as they earn commission from clients’ trades. Additional reporting metrics can further dent their customer base.

“Companies that were already going down that path and trying to be compliant won’t see much of a difference. The industry will need to invest more in compliance. Since it’s also financial data, they need to The data regime will have to comply with the SPDI (Sensitive Personal Data or Information) Rules of 2011 and as and when it comes, so will the data protection laws,” said Abhishek Malhotra, managing partner at TMT law practice.

To be sure, industry experts expect a similar response from customers as was seen last year after Tax Deducted at Source (TDS) was imposed on crypto deals. Top exchanges saw clients move to global exchanges as they were based overseas and were not automatically deducting taxes.

Malhotra cautioned that earlier local exchanges facilitating transactions had to ensure that anonymity was maintained. “Now they have to bring in systems to report suspicious activity. Because they want to avoid liability, they could potentially lose customers to foreign exchanges,” he said.

“VDAs have been notified by the Government as ‘Reporting Entities’ under the PMLA. This means that the prescribed reporting, record-keeping and monitoring obligations will apply to them as well. Without this, VDAs would have no FIU-IND reporting had no statutory basis,” said Anu Tiwari, partner, Cyril Amarchand Mangaldas.

Essentially, crypto exchanges were not legally required to report suspicious transactions etc. to the Financial Intelligence Unit – India (FIU-IND) of the Ministry of Finance. But, after the March 7 notification, they will face the same rules as banks and other financial institutions.

To be sure, around $23.8 billion worth of crypto was moved through illegitimate addresses in 2022 via various exchanges across the globe. That was 68% higher than in 2021, according to a January report from blockchain researcher Chainalysis.

Crypto exchanges, on their part, have welcomed the move. “This notification will help in establishing more transparency in the ecosystem and is a welcome positive step in strengthening the Indian VDA sector. It will also help in establishing a common standard for all VDA platforms,” Coinswitch co- said Ashish Singhal, founder and chief executive officer.

CoinDCX co-founder and CEO Sumit Gupta agreed, adding that the move will ensure that “robust and transparent players operate and comply” in the industry.

Meanwhile, Malhotra at TMT Law Practice said that crypto firms are facing allegations of money laundering.

“Crypto was not under the formal financial transaction setup. It needed to be brought within that setup for people to request KYC and to have a reporting mechanism.” compliance.

“Crypto exchanges have a responsibility to comply with transparency, identity and AML regulations. Globally, banks are severing ties with exchanges, putting pressure on exchanges and forcing them to look for an alternative model ,” said Prashant Garg, Technology Partner, EY India.