Indian Crypto Exchanges Expect Resurgence as Foreign Exchanges Face Compliance Notices
The Financial Intelligence Unit (FIU) has issued compliance show-cause notices to nine foreign virtual digital asset service providers and requested the IT ministry to block their URLs for non-compliance with regulatory norms. Indian crypto exchanges believe that this move will level the playing field and lead to a resurgence in local exchanges. Many investors who had shifted to trading on global exchanges to save on tax are expected to return to Indian exchanges now.
Impact of Tax Regulations on Domestic Crypto Exchanges
In the Union Budget 2022, the government announced a 30% tax on gains, 1% tax deducted at source (TDS), and no provision to offset losses for crypto transactions. As a result, domestic centralised crypto exchanges experienced a significant drop in trading volumes. According to a study by Esya Centre, trade volumes worth $3.852 billion shifted from domestic exchanges to foreign ones between February and October 2022.
Concerns of Crypto Investors
Indian crypto investors who have transitioned to global exchanges are now worried about the possible blocking of URLs of nine foreign exchanges. These investors are seeking more information about withdrawals and some are moving their assets to hardware or third-party wallets. Industry watchers note that popular foreign exchanges like OKX, Bybit, and BitGet are not included in the FIU list, while some less popular or rebranded exchanges are included.
Strengthening Investor Protection
The Indian crypto industry believes that the FIU’s actions will help strengthen investor protection by ensuring compliance with anti-money laundering (AML) guidelines and TDS requirements. Most Indian virtual digital asset (VDA) exchanges adhere to the Prevention of Money Laundering Act (PMLA) as FIU-registered entities. In March 2023, VDAs were included within the scope of the PMLA, requiring any exchange offering VDA services in India to comply with this Act.
Challenges for Global Exchanges
Complying with the stringent PMLA guidelines will be a challenge for most global exchanges. This complicates the situation for Indian investors who migrated to these exchanges. Experts advise Indian crypto investors to keep their digital assets on regulated and FIU-compliant platforms for better asset protection. They also suggest that the government should allow users time to move their assets from foreign exchanges before blocking their URLs.
Potential Crypto Revival in India
Despite strict positions taken by the Reserve Bank of India (RBI) and the finance ministry regarding cryptocurrencies, India has emerged as a leader in Chainalysis’ 2023 Crypto Adoption Index. Indian exchanges have seen higher volumes in recent months, and the price of Bitcoin has risen above $40,000. The regulatory clarity and positive market trends may bring back momentum in the crypto sector.
Hot Take: Boosting Compliance and Investor Protection in Indian Crypto Market
The Financial Intelligence Unit’s compliance show-cause notices to foreign virtual digital asset service providers and requests to block their URLs are expected to level the playing field and strengthen investor protection in the Indian crypto market. While this may lead to a resurgence in local exchanges, it poses challenges for global exchanges to comply with stringent regulations. Indian crypto investors should prioritize using regulated and FIU-compliant platforms for better asset protection. The government should also provide a transition period for users to move their assets before blocking foreign exchange URLs.
By
By
By
By
By