By placing crypto trading, safekeeping, and other financial services under the purview of the Prevention of Money Laundering Act, the Indian government has taken a big step towards tightening control of the digital asset sector. On Tuesday, the Union Finance Ministry published a notification requiring crypto exchanges and intermediaries dealing with virtual digital assets (VDA) to undertake KYC on their clients and platform users. They must also report any suspicious activity to the Financial Intelligence Unit India.

Entities in VDA are classified as “reporting entities” under PMLA, meaning they must keep a record of all transactions, including cash transactions over INR 10 lakh, for at least five years. Additionally, they must keep a record of any series of cash transactions that are inextricably linked to one another, when such series of transactions occur within a month and the monthly aggregate exceeds INR 10 lakh. 

Unlike traditional financial assets, NFTs are not subject to fluctuations in exchange rates or government regulations. The Indian government’s action is consistent with a global trend of requiring digital-asset platforms to meet anti-money laundering measures similar to those used by other regulated organizations such as banks or stockbrokers. According to the gazette notification, virtual digital assets are exchanged for fiat currencies, exchange between one or more forms of virtual digital assets, transfer of virtual digital assets (VDA), safekeeping or administration of virtual digital assets, or management of virtual digital assets or instruments allowing control over virtual digital assets, as well as participation in and supply of financial services associated to an issuer’s offer and sale of virtual digital assets virtual digital asset are now covered under the Prevention of Money Laundering Act, 2002.

The Indian government intends to combat illicit activity such as money laundering and other financial crimes in the crypto industry while also promoting openness and accountability. The inclusion of cryptocurrency exchanges and intermediaries as reporting companies under the PMLA will compel them to keep records of all transactions and report any suspicious activity, bolstering the government’s efforts to combat financial fraud and other unlawful acts.