India Enforces Stricter Crypto KYC as Regulators Expand Oversight

In Brief

• New FIU rules mandate live selfies, geo-tagging, and full KYC for all crypto users in India.
• Exchanges must conduct audits, submit monthly reports, and register under new compliance norms.
• Stricter verification may raise costs, slow user growth, and challenge smaller crypto platforms.

India’s Financial Intelligence Unit (FIU-IND) has implemented tighter Know Your Customer (KYC) and Anti-Money Laundering (AML) rules for crypto platforms. The updated guidelines took effect on January 8 under the Prevention of Money Laundering Act (PMLA), 2002.

The rules apply to all crypto service providers operating in India, including local and offshore exchanges. Platforms must now collect live selfies, geo-location data, verified bank account details, and comprehensive personal identification during onboarding.

The framework includes liveness detection, IP address tracking, and OTP verification for both email and mobile numbers. Exchanges must also gather income details, PAN information, occupation data, and a second government-issued ID.

To verify accounts, platforms must perform a “penny-drop” test transaction with user bank accounts. High-risk users will undergo KYC updates every six months, while others will be reviewed annually.

Ongoing Compliance Adds Pressure to Smaller Platforms

Crypto exchanges must register through the FINGate portal and appoint a compliance officer for AML and counter-terrorism financing oversight. They are also required to complete regular cybersecurity audits by certified professionals.

All platforms must conduct annual risk assessments, submit monthly suspicious transaction reports, and retain customer data for at least five years. Authorities have also discouraged use of ICOs, ITOs, and anonymity-enhancing tools such as mixers and tumblers.

The FIU stated these measures aim to close gaps exploited for fraud, gambling, and darknet transactions. Earlier enforcement actions included penalties and platform blocks for non-compliant exchanges.

While the new rules strengthen oversight, they increase operational costs and may slow onboarding and user activity. Smaller firms may face difficulties in maintaining compliance, audits, and reporting systems.

Increased verification steps could reduce participation from rural or low-access users, adding friction across the market. However, regulators believe stronger standards will attract institutional trust and align India with global AML practices.