India’s Cryptocurrency Legislative Landscape Prior to 2024

Prior to 2024, India’s approach to cryptocurrency regulation underwent significant developments, marking a shift towards a more structured and vigilant regulatory environment. The country’s actions reflected its efforts to balance the innovative potential of digital assets with the need to mitigate risks and ensure financial stability.

Integration into Anti-Money Laundering Framework

In a landmark move, India included cryptocurrency businesses under its anti-money laundering (AML) rules. This decision, announced by the Finance Ministry, required crypto-related businesses to register with the Financial Intelligence Unit (FIU) and comply with the mandatory processes outlined in the Prevention of Money Laundering Act (PMLA). These processes included performing verification methods like Know Your Customer (KYC) and reporting suspicious activities. The penalties for non-compliance could reach up to $1,220 for each failure. This step was seen as a significant move to regulate the industry and address concerns about money laundering and other illicit activities​​.

Response to Global Standards and Industry Reaction

The inclusion of the crypto industry in the AML regulatory framework followed the Financial Action Task Force’s (FATF) recommendation for nations to enforce identity checks on crypto users. The move was part of India’s effort to align with global standards for virtual assets and came amid discussions at the G-20 and international level for a licensing regime for cryptocurrencies​​. Industry reactions were mixed, with some viewing it as a step towards legitimacy and others perceiving it as a restrictive measure that could drive transactions to decentralized platforms​​​​.

Government’s Plan for Future Regulation

In early 2023, India’s Economic Affairs Secretary announced plans to introduce new measures for crypto regulation. This announcement indicated the government’s recognition of the growing popularity of cryptocurrencies and the need for a unified regulatory approach. The Reserve Bank of India’s Governor, Shaktikanta Das, had repeatedly advocated for a ban on cryptocurrencies and called for regulation to prevent their use, citing concerns about the central bank’s ability to monitor transactions​​​​​​​​.

In a post-budget interview, the Finance Minister emphasized the importance of developing a global standard operating procedure for crypto regulation. This approach aimed to establish a worldwide standard for regulating crypto while recognizing the central bank’s authority to issue digital currencies. The emphasis on international collaboration highlighted the cross-border nature of cryptocurrency technology and the need for collective action in regulation​​.

In summary, India’s legislative landscape for cryptocurrencies prior to 2024 evolved towards a more regulated environment, integrating crypto businesses into the AML framework and planning for further regulatory measures. This evolution reflected a cautious yet proactive approach, balancing the innovative potential of cryptocurrencies with the need for financial stability and risk mitigation.