India Enforces Stringent Compliance Measures on Cryptocurrency Platforms
In a significant move to enhance the security of the burgeoning cryptocurrency sector, India is now enforcing stringent bank-like compliance measures on cryptocurrency platforms. This new framework, directed by the Financial Intelligence Unit (FIU), requires all cryptocurrency exchanges, custodians, and intermediaries to undergo comprehensive cybersecurity audits. Service providers are compelled to partner with auditors accredited by the Indian Computer Emergency Response Team (CERT-In), which operates under the Ministry of Electronics and Information Technology.
Increase in Cybercrimes and Regulatory Response
As per a report by the Economic Times dated September 17, the introduction of these audits coincides with a notable increase in cybercrimes linked to cryptocurrencies—now constituting approximately 20-25% of all cyber offenses in India, according to figures from Giottus, a local platform. Recent incidents of cryptocurrency theft from exchanges have heightened the urgency for such regulatory measures.
Harshal Bhuta, a partner at P. R. Bhuta & Co., noted that these changes were likely prompted by the need for improved security following these thefts. He pointed out that adherence to CERT-In’s mandates, like maintaining logs and retaining subscriber information for designated periods, would assist law enforcement in tracing illicit fund movements through complex networks built around cryptocurrencies.
Revised Compliance Framework
Moreover, the FIU has revised its attestation requirements and replaced the “Fit & Proper” certificate with a new “Partner Accreditation for Compliance & Trust” certificate, which emphasizes a stricter regulatory compliance framework. While many legal experts view these advancements as positive strides toward better security for users, there are lingering concerns about the ability of traditional financial auditors to adequately address distinct risks associated with cryptocurrencies, such as protecting private keys.
Taxation and Regulatory Clarity Issues
Amid these developments, various unresolved issues still plague the sector, including burdensome tax rates and a lack of regulatory clarity. Presently, India’s taxation policy levies a hefty 30% on profits gained from cryptocurrency transactions, complemented by a 1% tax deducted at the source (TDS) on such transactions. The forthcoming Income-Tax Bill 2025 is set to legally define virtual digital assets (VDAs) and establish reporting obligations for entities operating within this domain.
Cautious Approach to Cryptocurrency Integration
Despite the government’s efforts to implement these measures, there remains a cautious approach to fully integrating cryptocurrencies into the financial framework, largely due to concerns that increasing their legitimacy may exacerbate market volatility and create systemic risks. There is also apprehension regarding international developments, such as U.S. stablecoin regulations, which could potentially disrupt not only India’s payment systems but the broader global financial landscape as well.
