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IImagine life without your credit card or your bank account freezing. or if you are in the business of selling goods online and you have been barred from using payment platforms or banking services. It will be difficult if not impossible to do. The situation is not far from reality for the crypto industry, which is facing informal and formal restrictions by banks and payment processors in processing their transactions.
As is evident from the statistics, the virtual currency industry is growing rapidly. investing in cryptocurrencies in india jump From $923 million in April 2020 to $6.6 billion in May 2021, a growth of over 600 percent in just 13 months. However, the actions of banks and payment exchanges have become a major impediment to the growth of the Blockchain and Cryptocurrency industry in India.
RBI circular violates fundamental right
In 2018, the Reserve Bank of India (RBI) issued a circular Preventing banks from facilitating trading in all cryptocurrencies. Crypto exchanges and industry associations challenged this before the Supreme Court. In 2020, the court rejected The circular, holding that the ban is a violation of the fundamental right to trade and carry on business guaranteed under Article 19(1)(g) of the Constitution.
In May 2021, however, HDFC Bank and State Bank of India, citing RBI’s 2018 ban, informed His clients trading in virtual currencies were not allowed.
Subsequently, RBI issued one more Clarifying the circular that “In view of the order of the Hon’ble Supreme Court, [2018] The circular is no longer valid from the date of the Supreme Court ruling, and therefore cannot be quoted or cited.” It is believed that crypto businesses may have dragged the respective banks and RBI to court again, and subsequently This largely worked to save themselves from another embarrassment and distance themselves from the thoughtless intervention of banks. Notably, however, the RBI circular did not direct banks to start serving the crypto industry. Instead It acknowledged that banks may continue to do due diligence with customers in line with (Know Your Customer) KYC and (Anti-Money Laundering) AML standards.
Private banks continue to impose restrictions
No wonder banks and other payment channels are exercising restraint in processing cryptocurrency transactions. In September 2021, SBI blocked Receive funds by cryptocurrency exchanges on their UPI platform. Similarly, many other banks are refusing to provide services to the exchanges. leading payment gateway Razorpay And ccavenue Prohibit business transactions involving ‘virtual currency and cryptocurrencies’. These actions have been taken despite there being no regulatory prohibition regarding the operation of cryptocurrencies.
Why are banks banning crypto transactions?
There can be many reasons why banks are concerned about the use of cryptocurrency. Some in industry Accept That the lenders are acting on the informal instructions of RBI. The central bank has regularly expressed its inhibitions about the prevailing use of cryptocurrencies and wishes to rein in the industry before the latter becomes too large to impose adverse regulations. However, it is not possible to confirm this without any formal instructions. Another argument, which is more lenient towards the regulator, could In the absence of detailed guidelines on the implementation of effective KYC/AML checks on cryptocurrency users and the concern about the recent advertising frenzy, banks find it convenient not to deal with them at all. After all, banks and other regulated financial institutions are entrusted with the responsibility by the RBI to keep an eye on high-risk activities. To be fair, banks globally are extremely conservative in their dealings with cryptocurrency businesses.
read also, Modi government should not ban cryptocurrencies. But regulation should not be too loose
Threatened, but practice unconstitutional
Banks may have no option but to play it safe. However, it must be said that the conduct of banks and other financial institutions is unconstitutional and violates the fundamental rights of crypto traders, investors and exchanges.
Firstly, access to banking facilities is an integral part of the exercise of the right to practice any trade or business. While deciding on the constitutionality of the 2018 circular, the Supreme Court held the Internet and Mobile Association of India (IAMAI) v. The RBI noted that “banking channels provide the lifeline of any business, trade or profession,” and the moment anyone “is deprived of the convenience of operating a bank account, the lifeline of his business or business shall be severed.” exits,” with the business “closing automatically.” After this, in Anuradha Bhasin v UoI, the Supreme Court also empowered digital businesses under Article 19(1)(g), observing that freedom of trade and commerce through the Internet is also constitutionally protected. Therefore, the actual ban being exercised by banks and payment platforms, especially state-owned lenders such as SBI, violates the fundamental rights of crypto exchanges, whose businesses suffer greatly.
Second, restrictions on fundamental rights are being implemented without any law. this is Settled Restriction of fundamental rights should be backed by law. However, there is no law that prevents banks from dealing with cryptocurrencies. In fact, RBI and National Payments Corporation of India has explicitly decided not to restrict crypto transactions on its platform. In the absence of such legislation, banks do not have the authority to reject a widely accepted model of business, and one that is flourishing nationally and globally.
Third, the actions taken by banks are clearly disproportionate and fail the ‘need’ of the proportionality test. After Puttaswamy matter, it was clear that restrictions on Fundamental Rights are justified only when impugned action is necessary and there is no other less restrictive alternative. However, in the present case, banks and payment gateways have banned virtual currencies and an entire merchant class of cryptocurrencies, classifying the crypto industry as illegal, rather than banning specific crypto merchants who are unreasonably high. May pose a risk or engage in fraudulent behavior.
Banks should intelligently implement required KYC and AML checks and blacklist only those merchants who pose a credible risk to consumers and the financial system in general, or who are suspected of funding money laundering/terrorism Is. Otherwise, the banks’ action is contrary to the SC’s decision in IAMAI, which made it clear that without restricting the trading of cryptocurrencies, the RBI (and hence, by extension, banks) cannot prohibit transactions on crypto exchanges. Thus, banks and payment exchanges cannot indirectly try to do what the RBI was prohibited from doing directly.
Considering all these factors, a writ petition against the public sector banks is maintainable. It may also be possible to implicate private banks and payment exchanges on the ground that they are performing a ‘public act’ which is subject to the writ jurisdiction of the High Courts. In fact, one such petition has already been filed in the Delhi High Court against SBI in October 2021, asking it to reverse its decision to prohibit UPI payments in crypto exchanges. Court has issued Information and listed the matter for December.
Read also: Modi government will consider allowing crypto trading for some investors
regulate, don’t ban
Cryptocurrency is a reality today. We need effective regulation to protect investors, and it is important that the government comes forward and regulates the sector through light-touch regulations. However, in the absence of any such legislation or decision, banks should not be allowed to continue infringing on the fundamental rights of crypto exchanges and retail investors. Most of the crypto exchanges in the country are self-regulating and put in place stringent mechanisms to curb money-laundering risks. Banks should work closely with industry to develop appropriate KYC/AML mechanisms and other policies.
The author is the Founder and Managing Partner of Ikigai Law. Thoughts are personal.
(Edited by Likes)
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