India Introduces Stricter KYC Rules for Crypto Users Under New FIU Framework

The Financial Intelligence Unit of India (FIU-IND) has implemented stricter Know Your Customer (KYC) and Anti-Money Laundering (AML) rules for cryptocurrency platforms. These rules require users to go through more thorough identity checks when they sign up. 

The , based on the Prevention of Money Laundering Act (PMLA) of 2002, aims to improve the monitoring of virtual digital assets (VDAs) and reduce the risks of fraud, money laundering, and terrorism financing.

India’s rules about cryptocurrencies are often changing. For example, they tax VDA gains at 30% and make registered platforms report any suspicious activity. The new laws apply to regulated Virtual Asset Service Providers (VASPs) who serve Indian users. They are now considered reporting organisations with more compliance responsibilities.

New significant Verification Requirements

The FIU now requires more advanced methods of identity verification than simply uploading documents. Platforms need to utilise live selfie verification, which means users have to take pictures of moving things, such as blinking eyes or turning heads, to prove they are there in real time and stop AI-generated or still images.

platforms must also collect geolocation information, such as latitude, longitude, IP address, and a timestamp, when an account is created. This assists set the physical environment for onboarding and identify potential difficultys. Other procedures involve minor test transactions, often called “penny-drop” verification, to ensure that bank accounts are linked. 

You also need to send a government-issued photo ID, such as an Aadhaar or passport, and your Permanent Account Number (PAN). It is still common to check email and phone numbers, and some standards require a second ID for completeness. As part of risk-based monitoring, users at high risk must undergo more due diligence, including more frequent checks.

A Wider Regulatory Context and Goals

The are in line with what Indian officials have said about anonymous wallets, decentralised platforms, and cross-border crypto capabilities, which could make it harder to enforce taxes and facilitate illegal activities. 

The Income Tax Department has already told lawmakers that diverse tax systems around the world and features make it hard to keep track of and tax crypto activity properly. The FIU wants to make India a major crypto market, home to over 1.4 billion people with significant on-chain interest, by applying these harsher rules to authorised platforms.

What This Means For The Industry

The regulations are likely to make it harder for new users to join, which might raise compliance costs for platforms and sluggish down user acquisition in the short run. But they might make people more likely to trust regulated platforms by lowering the danger of fraud and making crypto more like traditional financial protections.

The main announcements didn’t specify when VASPs had to comply or what the penalty for noncompliance would be. However, VASPs still have to file Suspicious Transaction Reports and other record-keeping standards. The framework is also said to ban some privacy-enhancing features, such as mixers, on platforms that comply with the rules.

These improvements show that India is committed to striking a balance between innovation and robust secureguards against illegal finance as it continues to improve its crypto regulatory framework.

People in the industry will probably adapt rapidly because the country has many users and there is a global push for standardised VASP supervision through frameworks such as those from the .