India's Financial Intelligence Unit (FIU-IND) has officially brought all virtual asset service providers (VASPs) under the Prevention of Money Laundering Act (PMLA), enforcing stringent Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations. This move aligns the crypto sector with traditional financial institutions, aiming to curb illicit activities and enhance transparency within the digital asset space.
Key Takeaways
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All crypto exchanges, wallet providers, and related platforms, regardless of location, must register with FIU-IND.
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Enhanced KYC procedures include live selfie verification, geo-location capture, and bank "penny-drop" checks.
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Anonymity-enhancing tools like privacy tokens and mixers are effectively banned.
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Non-compliance can lead to significant fines and criminal liability.
Expanded AML Scope for Crypto
India has formally integrated the cryptocurrency sector into its anti-money laundering framework. The FIU-IND, operating under the Ministry of Finance, has designated all VASPs as "reporting entities" under the PMLA, 2002. This designation requires these entities, whether based domestically or offshore, to adhere to the same compliance standards as banks and other regulated financial institutions.
Stringent KYC and Registration Requirements
To operate legally in India, all VASPs must register with FIU-IND. Failure to do so can result in enforcement actions, including substantial financial penalties and potential criminal charges. The new guidelines introduce rigorous KYC protocols. These include mandatory live selfie verification to prevent deepfakes, geo-location data capture during account creation, and bank account verification via a "penny-drop" process. Additionally, users must provide government-issued photo identification alongside their Permanent Account Number (PAN).
Ban on Privacy Tools and Enhanced Due Diligence
The new regulations explicitly prohibit transactions involving anonymity-enhancing tools such as privacy tokens, tumblers, or mixers. Crypto platforms are barred from facilitating such activities. Furthermore, enhanced due diligence measures are mandated for high-risk clients, including individuals from jurisdictions on Financial Action Task Force (FATF) black or grey lists, Politically Exposed Persons (PEPs), and non-profit organizations.
Record Keeping and Enforcement
Crypto platforms are now required to maintain customer identity and transaction records for a minimum of five years, or longer if an investigation is ongoing. Suspicious Transaction Reports (STRs) must be submitted to FIU-IND as required. The Enforcement Directorate is responsible for enforcement, and has already imposed fines totaling 28 crore rupees during the 2024-25 fiscal year for non-compliance.
Sources
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India’s FIU-IND puts crypto under full AML scope with strict KYC rules, crypto.news.
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India Announces Amended Rules for Prevention of Money Laundering, India Briefing.
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