Stricter KYC Norms for Crypto Exchanges in India

Context:

India has tightened Know Your Customer (KYC) and anti-money laundering (AML) norms for cryptocurrency exchanges. The move follows updated guidelines issued on January 8 by the Financial Intelligence Unit (FIU).

What has been mandated?

New KYC Requirements

Crypto exchanges must now mandatorily collect:

• PAN of the customer
• Selfie with liveness detection
• Geographical coordinates (latitude & longitude) of onboarding location
• Date & timestamp of onboarding
• IP address of the user
• Bank account verification using ‘penny-drop’ method

These form part of enhanced Client Due Diligence (CDD) norms.

Reporting & Compliance

• All crypto exchanges must:
  • Register with FIU as “reporting entities”
  • Submit regular reports on suspicious transactions
  • Maintain customer transaction records
• The FIU functions under the Ministry of Finance.

Activities Restricted

The guidelines:

• Discourage Initial Coin Offerings (ICOs) and Initial Token Offerings (ITOs)
• Prohibit facilitation of:
  • Tumblers and mixers
  • Anonymity-enhancing tokens
• Aim to curb:
  • Money laundering
  • Terrorist financing
  • Proliferation financing

Legal Framework

• Crypto exchanges are regulated under the:
  • Prevention of Money Laundering Act (PMLA)
• Cryptocurrencies:
  • Not legal tender in India
  • Taxed under the Income-Tax Act

Background

• FIU first issued AML-CFT guidelines for crypto service providers in March 2023.
• The 2025 update strengthens surveillance and traceability amid rising crypto adoption.