India’s Financial Intelligence Unit (FIU), a division of the Ministry of Finance tasked with collecting data on monetary infractions related to the Prevention of Money Laundering Act, served a notice to several crypto exchanges including Binance, HTX, Kraken, Gate.io, KuCoin, Bitstamp, MEXC Global, Bittrex, and Bitfinex. These platforms were flagged on December 28, 2023, for unauthorized operations within India.

The notification provided the involved companies with a 12-day timeframe to align their operations with India’s Know Your Customer (KYC) and Anti-Money Laundering (AML) guidelines.

Subsequent to the FIU’s notice, by January 10, Apple’s App Store in India began to delist the affected crypto exchange applications. This was soon followed by their removal from Google’s Play store and the blocking of their web and alternative URLs.

This abrupt ban caught numerous Indian cryptocurrency investors off guard, particularly as many had turned to these international platforms to circumvent the steep 30% tax imposed by the Indian government on crypto trading gains. The Economic Times reports that close to $4 billion in crypto assets were trapped in foreign exchanges, with Binance holding the lion’s share of around 80%. The same report estimates an annual loss of 30 billion rupees (approximately $361 million) in tax revenues due to the use of these international platforms by Indian traders.

The Indian government’s enforcement on international crypto exchanges takes place in the midst of an ambiguous regulatory scenario, with a lack of definitive guidelines for domestic exchanges to adhere to.

Recent: A German MP is considering the adoption of Bitcoin as legal tender within Europe.

Despite prolonged calls for regulatory clarity, the Indian authorities have not provided distinct guidelines, contributing to the ongoing uncertainty.

Crebaco Global CEO Siddharth Sogani, whose firm has consulted with India’s Ministry of Finance regarding digital asset regulations, commented to Cointelegraph that while these compliance measures are essential in addressing tax avoidance by Indian traders, the government should prioritize creating clear regulations for domestic crypto exchanges:

“Indian exchanges have had numerous incidents where they have disallowed client withdrawals. Before focusing on international platforms, the government should establish transparent regulations for domestic exchanges. It is unsatisfactory to turn attention elsewhere while these issues persist.”

This sentiment reflects the experiences of users on Indian exchanges like Bitbns who have faced withdrawal issues and account locks extending over half a year.

Conversely, Rajagopal Menon, the vice president of WazirX, implies that the FIU’s steps were much needed. He suggests that foreign exchanges benefited unfairly from the regulatory and tax discrepancies at the expense of Indian exchanges:

“The situation is detrimental for all parties: Indian users are left without support, governmental tax revenue diminishes, and local exchanges see their market share deplete.”

Menon indicates that regulations are mandatory given India’s commitment to the G20 Delhi declaration, which calls for a regulatory framework for crypto by 2025. He anticipates significant progress post the election of a new government.

While India has advocated for global dialogue on cryptocurrency regulation, it has repeatedly deferred the introduction of crypto-focused legislative action in parliament for the past five years.

Are international crypto exchanges considering a return to Indian markets?

Despite its potential for growth, India’s ambiguous stance on crypto has left many exchanges in limbo.

During the latest bullish phase in 2021, India saw a surge in crypto transactions, prompting numerous exchanges to express interest in establishing an Indian presence. However, the lack of clear guidelines and a steep tax on crypto without the ability to offset losses have discouraged these ventures and pushed local crypto businesses and traders to seek opportunities elsewhere.

CoinDCX CEO Sumit Gupta informed Cointelegraph that the FIU prohibition is a step towards enacting regulations. He claimed that the groundwork has been laid for foreign exchanges to register and serve Indian clientele in accordance with FIU regulations.

Gupta added that these developments will not only assure government bodies and protect Indian investors from possible malefactors and tax noncompliance but will also pave the way for equitable regulations, including fairer taxation policies.

“The Indian Web3 industry will continue to be hampered by severe taxation until a unified effort is made to adhere to local laws. This would guarantee a level competitive landscape teeming with opportunities for Indian developers and investors.”

When Cointelegraph reached out to Binance, Kraken, KuCoin, MEXC, Bitfinex, and Huobi for comments on their intentions in India, most chose not to respond.

A Binance spokesperson stated to Cointelegraph that the company remains committed to following local regulations, and they would continue to engage with regulators to safeguard users and foster the growth of a robust Web3 industry. They assured that updates would be shared through official channels when appropriate.

An HTX representative clarified to Cointelegraph that the exchange currently operates no services in India and intends to adhere to and strictly follow global regulatory requirements.

Recent: Privacy concerns continue as the United Kingdom progresses with plans for a digital pound CBDC.

YouTube personality SMC Kapil Dev pointed out that OKX was among the early foreign crypto exchanges to respond to compliance demands and recommenced KYC procedures for Indian customers. OKX did not comment on inquiries from Cointelegraph.

According to a post by Indian crypto influencer Aditya Singh, most crypto exchanges have begun addressing the FIU’s directives and are making efforts to resolve the matter.

Singh further speculated that the registration of foreign crypto exchanges with the FIU might transpire after the general elections in India, expected in July 2024.