The Indian Finance Ministry has announced that anti-money laundering legislation will be applied to the cryptocurrency sector. The notice, cited by Bloomberg news agency, states that the legislation will apply to crypto trading, safekeeping, and related financial services. This move is in line with the global trend of requiring digital-asset platforms to follow anti-money laundering standards, similar to those followed by other regulated entities such as banks or stockbrokers.
Jaideep Reddy, counsel at law firm Trilegal, stated that the move is in line with global trends and will help bring the Indian cryptocurrency market into line with the rest of the world. He added that it is essential for India to follow anti-money laundering standards to prevent regulatory arbitrage. Regulatory arbitrage refers to taking advantage of the difference in regulatory requirements between countries.
In December, the Ministry of Finance informed Parliament that all policies on crypto assets, the regulatory ecosystem for cryptocurrencies, and any legislation on the subject will require significant international collaboration. The Ministry added that any legislation on the subject can be effective only with significant international collaboration to prevent regulatory arbitrage.
This move comes after the government announced in Budget 2022 that beginning on April 1 of last year, all forms of virtual digital assets (VDA) or crypto assets that are sold at a profit would attract a tax of 30%. These moves, as well as a global rout in digital assets, caused a plunge in domestic trading volumes.
In October 2022, Finance Minister Nirmala Sitharaman stated that there is a need to regulate cryptocurrencies, and all countries will have to work together on it. She added that no country can singularly handle it and that global regulation of cryptocurrencies is necessary to tackle the risks of money laundering and terror funding. She also said that the issue of cryptocurrency would be a part of India’s agenda during its G-20 presidency.
However, Trilegal counsel Reddy has expressed concern that implementing the necessary compliance measures will require time and resources. This concern arises because the crypto industry in India is still in its early stages, and many firms may not have the necessary infrastructure and resources to comply with the anti-money laundering legislation.
The Indian government’s decision to apply anti-money laundering legislation to the cryptocurrency sector is in line with global trends. It is essential for India to follow anti-money laundering standards to prevent regulatory arbitrage and bring the Indian cryptocurrency market in line with the rest of the world. However, the implementation of the compliance measures may require time and resources, which could be a challenge for many firms in the industry. The government will need to work with the industry to ensure that the necessary infrastructure and resources are in place to comply with the new regulations.
