News– The Financial Intelligence Unit–India (FIU-IND) issued updated Anti-Money Laundering (AML) and Combating Financing of Terrorism (CFT) guidelines on 8 January, tightening Know Your Customer (KYC) norms for cryptocurrency / virtual digital asset (VDA) exchanges operating in India.
Key highlights of the new FIU guidelines
1. Mandatory registration with FIU-IND
- All cryptocurrency exchanges and virtual digital asset service providers must register as “Reporting Entities” under the Prevention of Money Laundering Act (PMLA), 2002.
- FIU-IND is the single-point regulator for crypto exchanges in India.
2. Enhanced KYC & Client due diligence (CDD) norms
Crypto exchanges must mandatorily collect:
- Permanent Account Number (PAN)
- Selfie with liveness detection
- Geographical coordinates (latitude & longitude) of onboarding location
- Date & timestamp of onboarding
- IP address of the customer
- Verified bank account
3. Penny-Drop Verification Mandated
Bank account verification using the ‘penny-drop’ method is compulsory.
What is Penny Drop Verification?
- It is a bank account verification method where a small amount (usually Rs. 1) is deposited to confirm account ownership.
- Process: A micro-deposit is sent using the account number and IFSC, and the bank returns the registered account holder’s name.
- Verification: The returned name is matched with KYC/PAN details of the user.
- Purpose:It helps prevent fraud, fake accounts, and money laundering, and ensures secure financial transactions.
4. Restrictions on high-risk Crypto activities
The guidelines explicitly prohibit exchanges from facilitating:
- Tumblers and mixers (used to obscure transaction trails)
- Anonymity-enhancing tokens
- Transactions designed to hide the origin or destination of funds
5. Discouragement of ICOs and ITOs
Exchanges are discouraged from promoting or facilitating:
- Initial Coin Offerings (ICOs)
- Initial Token Offerings (ITOs)
6. Reporting & Record-Keeping obligations
- Exchanges must:
- Maintain detailed customer records
- Report suspicious transactions (STRs) to FIU-IND
- Monitor risks related to:
- Money laundering
- Terrorist financing
- Proliferation financing
Note– Legal status of Cryptocurrency in India: Cryptocurrencies are not recognised as legal tender in India but are taxed under the Income-Tax Act. Regulatory oversight is exercised through the Prevention of Money Laundering Act (PMLA), not currency laws.
About Financial Intelligence Unit – India (FIU-IND)
- Established: 2004
- Nature: Independent national agency
- Administrative control: Reports to the Economic Intelligence Council (EIC) headed by the Finance Minister
- Function:
- Receives, analyses, and disseminates information on suspicious financial transactions
- Coordinates national & international efforts against money laundering and terror financing
