India Tightens KYC Rules for Crypto Users with Live Selfies and Bank Checks

Highlights:

• India has tightened KYC rules for crypto users with live selfie checks and regular data updates.
• Exchange breaches accelerated stricter onboarding, monitoring, and AML enforcement across platforms.
• Privacy coins, ICO limits, and high taxes continue to shape India’s cautious crypto policy stance.

India has shifted toward stricter crypto onboarding regulations as regulators put more pressure on exchanges to seal gaps in money laundering. The Financial Intelligence Unit has published new instructions that redesign the process of platform verification during sign-up.

The regulations address identity abuse and account farming within crypto offerings. Authorities attribute the changes to increased risks of fraud and the occurrence of exchange incidents. Consequently, platforms have to implement more intensive screening of users before they can trade.

The guidance applies to all registered crypto exchanges operating in India. Exchanges are now needed to authenticate users with live selfie checks during onboarding by the FIU. Software used on platforms should verify eye blinking or head movement. In addition, exchanges must collect IP address details at account creation. They must also record the geolocation timestamp and device information.

Users must submit additional government-issued photo identification. Accepted documents include Aadhaar, passport, voter ID, or driver’s license. Exchanges should also receive PAN and address information. Moreover, users should validate both email and mobile numbers by OTP verification checks. These are to ensure that the contact is genuine.

Exchanges should also make sure that they check bank accounts prior to handing over platform access. They are required to initiate a moderate refundable test transfer to the user account. Regulators consider this measure to be key to AML controls. The FIU also established definite timeframes regarding data updates. High-risk users must refresh KYC every six months, while others update annually.

India Tightens KYC Rules After Exchange Hacks Raise Risk Concerns

The stricter rules follow major security incidents at leading Indian exchanges. WazirX fell victim to a hack that emptied approximately $235 million in cryptocurrency two years ago. The event interrupted operations and instigated a court-supervised recovery effort. Access controls were later identified as weak by regulators. The incident heightened regulatory oversight throughout the industry.

CoinDCX experienced another breach of about $44 million in coins last year. The attack was aimed at an internal operation wallet that handles partner liquidity. The incident did not impact customer cold wallets. Nevertheless, the breach left internal risk management in question. Both cases were taken by regulators as a warning.

The FIU desires exchanges to keep a closer monitoring of transactions. The Travel Rule is another policy that the agency aims to enforce more strictly. It will also address peer-to-peer transfers and unhosted wallets. Exchanges are required to keep comprehensive records and file suspicious activity reports. They must also retain client data for at least five years.

India brought virtual digital asset providers under the Prevention of Money Laundering Act in March 2023. Since then, the FIU has pushed mandatory registration for all platforms. During the 2024 to 2025 period, 49 entities registered as reporting institutions. These included 45 domestic exchanges and four offshore platforms. Binance, Coinbase, and KuCoin re-entered after completing compliance steps.

Privacy Tools and Taxes Add Pressure on Crypto Platforms

The FIU also restated its opposition to privacy-focused crypto tools. The guidance discourages mixers, tumblers, and obfuscation methods. It also targets tokens that conceal ownership or transaction history. Exchanges must block any activity linked to these tools. Regulators see them as high risk for laundering and terror financing.

The agency also warned against initial coin offerings and token offerings. Officials say these products carry complex compliance risks. Platforms should avoid being exposed to unregulated token sales. In the meantime, the crypto tax regime in India is still influencing market behavior. The nation imposes a 30% tax on profits and does not allow loss deductions.

These policies, according to regulators, help in achieving financial stability objectives. Nonetheless, industry players claim that stringent regulations restrict domestic expansion. The Reserve Bank of India still categorizes crypto as a high-risk asset category.