Crypto intermediaries

The Prevention of Money Laundering Act (PMLA) is an Indian law that aims to prevent money laundering and the financing of terrorist activities. As per recent developments, the Indian government is planning to bring crypto intermediaries under the ambit of PMLA. This means that cryptocurrency exchanges, wallet providers, and other intermediaries will be required to comply with the PMLA regulations, including customer due diligence and reporting suspicious transactions.

The Indian government introduced a significant notification on March 7, 2023 bringing into coverage of various crypto intermediaries within the purview of the Prevention of Money Laundering Act, 2002 (PMLA). However, the Supreme Court of India overturned the ban in 2020, paving the way for greater adoption of cryptocurrencies in the country.

The global cryptocurrency industry has been slammed by setbacks, scandals and high-profile failures in recent months, sparking a regulatory rush to protect consumers from fraud and scams. The global crypto market stands at more than $1 trillion and has risen sharply in recent months, although it remains far below its 2021 peak of $3 trillion. The number of crypto customers "grew during the Covid lockdowns .

This move is aimed at bringing greater transparency and accountability to the cryptocurrency sector, which has been largely unregulated in India so far. By subjecting crypto intermediaries to PMLA regulations, the government hopes to prevent money laundering and the financing of illegal activities through the use of cryptocurrencies.

The coverage under the PMLA is borrowed from the definition of Virtual Asset Service Provider (VASP) in the Report of the Financial Action Task Force (FATF) on ‘Updated Guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers’ released in October 2021. Since the government has not given a detailed explanation about the entities that will be covered under the PMLA due to the notification, one can usefully refer to the guidance provided in the FATF report in relation to the definition of VASP.

Going forward, bringing crypto intermediaries under the PMLA regulations is a positive step towards regulating the cryptocurrency sector in India and preventing its misuse for illegal activities.

S Mohini Ratna, Editor, VARINDIA