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Indian crypto exchanges are now classified as VDA service providers under AML law
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FIU mandates live KYC, PAN verification, and bank account checks
India is stepping up its regulatory grip on cryptocurrencies as authorities intensify efforts to prevent money laundering and terrorist financing. The Financial Intelligence Unit (FIU), the country’s anti–money laundering watchdog, has rolled out a new set of rules that significantly raise compliance standards for crypto exchanges operating in the country. The updated framework signals a shift toward deeper surveillance and stricter accountability across India’s digital asset ecosystem.
Under the updated rules issued on January 8, crypto platforms are now officially classified as Virtual Digital Asset (VDA) service providers. This places them squarely within India’s anti–money laundering framework and subjects them to the same expectations as traditional financial institutions. Regulators cited the fast-moving and semi-anonymous nature of crypto transactions as a key risk factor for money laundering, terror financing, and proliferation-related crimes.
Live Identity Verification Becomes the New Standard
One of the most notable changes is the requirement for live identity verification during user onboarding. Exchanges can no longer rely solely on document uploads. Instead, they must verify users through real-time checks, including selfie-based authentication, to ensure identities are genuine and active.
Beyond identity documents, platforms are required to collect and store a wide range of technical data points, including IP addresses with timestamps, geolocation details, device identifiers, wallet addresses, and transaction hashes. These data points are intended to strengthen monitoring, risk profiling, and investigative capabilities.
Stricter Controls on PAN and Bank Verification
The new framework makes Permanent Account Number (PAN) verification mandatory before users can access any crypto-related services. Bank account verification has also been reinforced, with exchanges required to use a “penny-drop” method to confirm account ownership and functionality.
In addition, users must submit a secondary government-issued ID, such as a passport, Aadhaar card, or voter ID, while phone numbers and email addresses must be verified through one-time passwords.
Industry Reaction and Reduced Regulatory Ambiguity
Major players in India’s crypto sector have largely welcomed the updated rules. Industry leaders note that many large exchanges had already implemented similar safeguards. The FIU’s move is seen as reducing uncertainty and minimizing the risk of inconsistent enforcement across platforms, which has been a long-standing concern for operators.
Crackdown on High-Risk Activity
Enhanced due diligence is now mandatory for high-risk users, including politically exposed persons, nonprofits, and clients connected to jurisdictions flagged by the Financial Action Task Force. Exchanges must also identify and block transactions involving mixers or other anonymity-enhancing tools.
