The Financial Intelligence Unit (FIU) of India’s Ministry of Finance recently issued a notice of noncompliance to several foreign cryptocurrency exchanges, including Binance, HTX, Kraken, Gate.io, KuCoin, Bitstamp, MEXC Global, Bittrex, and Bitfinex. The notice required these exchanges to comply with Indian Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations within 12 days. As a result, Apple’s App Store and Google’s Play store blocked these exchanges in India, followed by a ban on their URLs and alternate URLs.
The ban on foreign exchanges came as a shock to many Indian crypto traders who had turned to these platforms to avoid the 30% tax on cryptocurrency trading profits imposed by the Indian government. According to the Economic Times, around $4 billion worth of crypto assets were stuck on offshore platforms, with Binance holding nearly 80% of this amount. The use of foreign exchanges by Indian traders is estimated to cost the Indian government approximately 30 billion rupees ($361 million) in tax revenue each year.
This compliance action against foreign exchanges highlights the lack of clear regulations for domestic exchanges in India. Despite years of campaigning for regulatory clarity, the Indian government has not provided any concrete guidelines. Siddharth Sogani, CEO of blockchain analytics firm Crebaco Global, emphasized the need for the government to focus on domestic exchanges and address issues such as user complaints and fund withdrawals.
On the other hand, Rajagopal Menon, vice president of Indian exchange WazirX, stated that the FIU’s action was long overdue. He argued that foreign exchanges were taking advantage of regulatory and tax loopholes, and regulations were necessary to level the playing field. Menon highlighted that India is a signatory to the Group of 20 (G20) Delhi declaration, which aims to establish crypto regulations across all G20 countries by 2025.
Despite the uncertainty surrounding crypto regulations in India, there are indications that foreign exchanges may still reenter the market. Sumit Gupta, CEO of Indian crypto exchange CoinDCX, believes that the FIU ban is a step towards enforcing regulations. He stated that offshore exchanges can register and serve Indian customers under FIU guidelines, which will provide reassurance to government stakeholders and prepare the industry for supportive regulations.
When contacted, most of the foreign exchanges, including Binance, Kraken, KuCoin, MEXC, Bitfinex, and Huobi, declined to comment on their plans in India. However, Binance assured its commitment to adhering to local regulations and maintaining communication with regulators to protect users and promote a healthy Web3 industry. HTX stated that it currently has no operations in India but will comply with regulatory requirements globally.
According to YouTuber SMC Kapil Dev, OKX was one of the first foreign exchanges to work with compliance requirements and restart KYC for Indian customers. Indian crypto influencer Aditya Singh suggested that FIU registration for foreign exchanges may begin after the general elections in India conclude in July 2024.