India has moved to strengthen oversight of cryptocurrency exchanges with new regulations aimed at curbing money laundering, terrorism financing and other illicit financial activity in the rapidly expanding digital asset sector. The country’s Financial Intelligence Unit (FIU), the federal anti‑money laundering authority, has introduced a series of stricter Know Your Customer (KYC) and Anti‑Money Laundering (AML) requirements that go well beyond previous norms, regulatory filings and official sources show.
Under guidelines issued in early January, all cryptocurrency trading platforms and service providers registered in India must now verify users’ identities far more rigorously before allowing them to trade or transact. New onboarding procedures include mandatory live identity verification through selfie capture and liveness detection, along with geo‑tagging and IP tracking to confirm that the person creating an account is physically present and is who they purport to be. Platforms must also collect detailed government identity documents, such as PAN (Permanent Account Number), Aadhaar, passport or voter ID, and verify linked bank accounts using “penny‑drop” micro‑transactions that confirm account ownership.
The heightened verification requirements are part of India’s broader effort to integrate digital asset platforms more fully into its financial compliance framework. Cryptocurrency exchanges are now formally classified as Virtual Digital Asset (VDA) service providers, and must register with the FIU and comply with the Prevention of Money Laundering Act (PMLA) by submitting regular reports on suspicious transactions.
Authorities have made the stricter regime necessary, officials say, because of the anonymous and cross‑border nature of many crypto transactions, which can be exploited to move illicit funds with little oversight. Regulators are particularly focused on the risk that digital assets could be used to conceal proceeds from crimes, evade taxes, or channel money to extremist causes, concerns that have featured prominently in the FIU’s strategic analysis of suspicious transaction reports (STRs) filed by exchanges in recent years.
Beyond individual identity checks, the new framework requires platforms to maintain ongoing monitoring of accounts and transactions for signs of high risk, including unusual cash flows, links to jurisdictions flagged by the Financial Action Task Force (FATF), or involvement in schemes with little economic rationale such as unregulated token offerings. Exchanges must also keep detailed records of user activity for compliance and enforcement purposes.
Industry observers note that while the tougher rules are expected to raise compliance costs and may slow user onboarding, they bring India closer to global financial standards for digital asset regulation. The FIU has framed the initiative as necessary to safeguard the integrity of the financial system and to ensure that legitimate innovation in blockchain and crypto markets can continue without being undermined by criminal misuse.
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