Cryptocurrency Prices today, Charts And Market Capitalizations |Ty gia Coin logo Cryptocurrency Prices today, Charts And Market Capitalizations |Ty gia Coin logo
2023-12-29 09:13:36

India Shodawbanning Foreign Crypto Exchanges – Is It A Good Move for Industry?

The Indian government has recently intensified regulatory actions against major foreign cryptocurrency exchanges like Binance, KuCoin, Huobi, Kraken, Gate.io, Bittrex, Bitstamp, MEXC Global and Bitfinex. The country’s Financial Intelligence Unit (FIU) issued show cause notice to these nine platforms for operating in violation of local Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) rules. Additionally, the authorities requested the Ministry of Electronics and Information Technology to restrict access to their websites.

While this move has caused some turmoil among Indian crypto investors and traders, it is a step in the right direction for regulating the virtual digital assets industry in India. Here’s a deeper look at what prompted the crackdown, how it impacts different stakeholders, and why it may prove beneficial over the long term.

The Backdrop – Why India is Cracking Down on Foreign Crypto Exchanges

In March 2022, the Indian government brought cryptocurrencies under the purview of the Prevention of Money Laundering Act (PMLA). All Virtual Asset Service Providers (VASPs) dealing with crypto were mandated to register with the FIU and adhere to reporting requirements regarding suspicious transactions, customer due diligence, etc.

However, the FIU recently observed that numerous overseas crypto platforms have extensively catered to Indian users without fulfilling these compliance standards. They were neither filing suspicious transaction reports (STRs) nor following Know Your Customer (KYC) norms.

The FIU identified Binance, KuCoin, Huobi, Kraken, Gate.io, Bittrex, Bitstamp, MEXC Global, and Bitfinex as entities operating in India despite having no physical presence or registration here.

Hence, formal notices were sent asking them to explain the legal basis for their Indian operations.

This action builds on earlier steps taken by the Enforcement Directorate and tax authorities against money laundering via crypto channels. Preventing the misuse of virtual assets for terrorism, drugs and illegal arms trading has become a priority for governments worldwide.

India’s tax policies have also made trading on foreign exchanges lucrative to bypass domestic KYC and often TAX requirements. A 1% Tax Deducted at Source (TDS) applies on all crypto transfers above Rs 10,000 made on Indian exchanges.

Clamping down on non-compliant offshore crypto businesses aims to bring transactions back onshore where they can be monitored under local regulations. It is also expected to boost tax revenues from the high-volume virtual asset market.

What Does This Move Mean for Indian Crypto Users?

The FIU’s firm action has rattled many Indian investors and traders using these global exchanges to buy, sell, and transact in cryptocurrencies.

Binance alone boasts around 5-10 million users in India – its largest market. When the tax rules kicked in earlier in 2022, trading volumes on India’s primary crypto exchange, WazirX, and other domestic platforms shrunk by 95%. Much of this shifted to offshore havens, though volumes have picked up again in recent months as users found workarounds.

If websites like Binance.com are blocked in India, existing users will be locked out of their accounts. Those wanting to enter/exit crypto positions might have to return to domestic VASPs and comply with taxes.

However, technically savvy users may access these platforms via VPNs, or other mechanisms may be able to bypass restrictions. It remains to be seen how watertight the proposed website blocks can be.

Nevertheless, this incident highlights the precarious legal position of investors who trade crypto abroad to avoid Indian regulations. Your assets could be frozen anytime without recourse if the platform itself falls afoul of RBI or FIU norms. Regulatory uncertainty and lack of investor protection remain key threats.

What Should Foreign Exchanges and Virtual Asset Service Providers Do?

Foreign crypto businesses must take India’s tightened stance very seriously or risk losing access to their biggest market.

Platforms like Binance and Kucoin must assess whether their current operating structure complies with Indian laws. If they allow Indian users and have servers or technical infrastructure located here, registering with local authorities is the safest option.

Seeking legal counsel to understand their exact regulatory obligations is the first step. Thereafter, they can evaluate the feasibility of officially applying for authorization and adapting their compliance systems accordingly.

If the exchanges are based entirely offshore and allow only non-Indian users, they need to geo-block signups from India and prevent trading by Indian IP addresses.

This incident is India’s signal to foreign crypto exchanges that they can no longer fly under the radar and considering India is one of the biggest market for many of these exchanges, it will be interesting to see how things unfold in the days to come.

A while back, Coinbase decided to shut down its expansion and operation in India.

Why This Move Could Ultimately Benefit the Indian Crypto Ecosystem

While the FIU’s strong-arm tactics have created short-term uncertainty, there are longer-term positives for the Indian crypto industry:

  1. Levels the playing field: Domestic platforms suffer when Binance and other global players take away a massive chunk of liquidity. Regulating them and restricting unfair access brings back volumes to local regulated businesses that fuel innovation and job creation within the country.
  2. Improves security: Monitoring transactions on Indian exchanges allows authorities to identify suspicious or illegal activity much more quickly than offshore platforms.
  3. Broadens the tax base: As mentioned earlier, avoiding taxes has been one of the major motivations for Indian users to move to international exchanges. Plugging this gap not only means higher revenue but also conveys the message that virtual assets must be treated on par with other investment assets.
  4. Raises industry credibility: For the Web3 ecosystem to flourish, confidence in transparent and lawful operations is crucial. When regulations are perceived as lax or ineffective, it affects the image of the entire sector.
  5. Opens doors for innovation: India is already emerging as a global hub for Web3 – with cutting-edge research, applications and services built around crypto. However, regulatory uncertainty has been a key barrier, making it harder to attract talent and capital. The current actions signal the government’s seriousness around creating a calculated framework for the industry’s growth in India.

Conclusion: India Issues Compliance ‘Show Cause’ Notices

India’s crackdown on foreign exchange was much needed and anticipated ever since crypto regulations were firmed up over the last year.. All major countries around the world are tightening the rope around these foreign exchanges which are not registered with country financial authorities.

India’s crackdown on unregistered offshore crypto exchanges is a decisive step to extend the country’s AML and taxation policies to virtual assets.

No doubt there will be short-term pain as some user access is disrupted. It may prove beneficial over the long run by consolidating trading volumes to regulated Indian crypto exchanges and give more visibility to the regulators about the participants, and also ensure capital control.

Foreign crypto exchanges keen to tap into the Indian market must engage proactively with regulators and comply with local laws. Severe action may be imminent otherwise. At the same time, Indian authorities also need to ensure laws are not so restrictive as to stifle innovation in this high-potential space.

There are certainly exciting times ahead for the industry in the coming years!

Was this helpful?

Thanks for your feedback!
News appeared first on: Coinsutra.com

Read the Disclaimer : All content provided herein our website, hyperlinked sites, associated applications, forums, blogs, social media accounts and other platforms (“Site”) is for your general information only, procured from third party sources. We make no warranties of any kind in relation to our content, including but not limited to accuracy and updatedness. No part of the content that we provide constitutes financial advice, legal advice or any other form of advice meant for your specific reliance for any purpose. Any use or reliance on our content is solely at your own risk and discretion. You should conduct your own research, review, analyse and verify our content before relying on them. Trading is a highly risky activity that can lead to major losses, please therefore consult your financial advisor before making any decision. No content on our Site is meant to be a solicitation or offer.