Source: The post Virtual Digital Assets regulations in India has been created on the article “Why did FIU IND act against virtual asset providers?” published in The Hindu on 2nd January 2024.
UPSC Syllabus Topic: GS paper3 –Internal Security –Money Laundering and its prevention
News: The Financial Intelligence Unit India (FIU IND) has issued Show Cause Notices to 9 offshore Virtual Digital Assets Service Providers (VDA-SPs) for not complying with the PMLA regulations. The FIU IND has also requested the Ministry of Electronics and Information Technology to block URLs of these entities.
What are Virtual Digital Assets?
The Financial Action Task Force (FATF) defines a virtual asset as “A digital representation of value that can be digitally traded, transferred and used for payment or investment purposes“.
How Virtual Digital Assets regulated in India?
PMLA Compliance: India brought Virtual Digital Assets Service Providers (VDA SPs) under Anti Money Laundering/Counter Financing of Terrorism (AML-CFT) regulations of the Prevention of Money Laundering Act (PMLA) 2002 in March 2023.
For more information on Counter Financing of Terrorism read here
Register with Financial Intelligence Unit India (FIU IND): VDA SPs must register with FIU IND and comply with reporting and record-keeping obligations. Till now, 31 VDA SPs have registered, but several offshore entities serving Indian users remain unregistered.It highlights the challenge of enforcing compliance in the virtual digital assets space.
Government Enforcement: India aims to enforce PMLA on both domestic and offshore entities, aligning with global cryptocurrency regulations.
What is the view of the Bureau for International Settlements (BIS) on the regulation of VDA SPs?
Regulatory Options: The BIS observed three main strategies for regulating crypto: outright ban, containment, and comprehensive regulation.
Challenges of a Ban: It noted that outright bans may not be effective due to the pseudo-anonymous nature of crypto assets, potentially leading to reduced market oversight.
Containment Strategy: The containment approach aims to control interactions between crypto markets and the traditional financial system, yet it may not fully address the vulnerabilities of the crypto market or mitigate financial stability risks.
Need for Regulation: BIS suggests that regulation, although challenging, may be necessary to address the inherent risks in the crypto market and maintain financial stability.
Way forward
The way forward includes stricter enforcement of AML laws, ensuring both domestic and offshore VDA SPs comply. It involves balancing regulatory strategies to manage the crypto market’s pseudo-anonymous nature and maintain financial stability.
Terminology used
Financial Intelligence Unit India (FIU-IND)- Established in 2004 to serve as the primary national organization in charge of gathering, analyzing, and disseminating data about improbable financial transactions.
Question for practice
Examine the Bureau for International Settlements (BIS) view on the regulation of Virtual Digital Assets Service Providers (VDA SPs) and the regulatory options it suggests for the crypto market.
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