Indian crypto exchanges face rising costs and compliance burdens under PMLA, while foreign platforms bypass laws, raising serious concerns over financial security, consumer protection, and national integrity.
New Delhi, In March 2023, the Government of India took a pivotal step by bringing Virtual Digital Asset (VDA) service providers—such as crypto exchanges and custodians—under the purview of the Prevention of Money Laundering Act (PMLA), officially designating them as reporting entities. This move aimed to align India’s financial ecosystem with global anti-money laundering (AML) and counter-terrorism financing (CFT) standards, particularly those recommended by the Financial Action Task Force (FATF). However, nearly two years on, glaring regulatory loopholes persist, demanding urgent corrective action.
Following the mandate, several Indian crypto exchanges adopted robust compliance frameworks. These included fully digitized Know Your Customer (KYC) procedures, staff training for filing Suspicious Transaction Reports (STRs), and secure data sharing with the Financial Intelligence Unit of India (FIU-IND). While these platforms endured significant operational and financial burdens, they adhered to the law in good faith.
In contrast, numerous offshore crypto platforms continue to operate freely in India without adhering to local laws. These platforms aggressively target Indian users via Telegram and other informal channels, often marketing in local languages and bypassing any meaningful KYC protocols. Their trading environments lack transparency and security, posing major risks to users and the system.
The continued operation of these non-compliant platforms has created a skewed competitive landscape. Indian exchanges that follow the law face regulatory delays and higher compliance costs, while their unregulated counterparts attract users with promises of anonymity, ease, and speed. This shift has pushed many Indian users toward unauthorized platforms, making the issue not just a market imbalance but a growing threat to financial integrity and national security.
For Indian enforcement agencies, the challenge is immense. These rogue platforms can facilitate capital flight, tax evasion, and even terrorist financing. Users are also at heightened risk of fraud, phishing, and cyberattacks, with no legal recourse or grievance redressal mechanisms in place.
Although the Indian government has issued show-cause notices to certain foreign entities, conventional measures like URL blocking or delisting from app stores have proven ineffective. These platforms often bypass such restrictions with ease, rendering traditional enforcement inadequate.
The perception that law-abiding platforms are penalized while violators thrive erodes investor confidence and discourages innovation. It also tarnishes India’s international image—especially critical with the upcoming FATF review in 2026.
To address this regulatory vacuum, the government must implement targeted actions such as geo-blocking, payment gateway surveillance, and strict enforcement of FATF’s Travel Rule. Additionally, a coordinated inter-ministerial task force and a nationwide public awareness campaign are essential.
India’s crypto future depends not just on progressive policy formulation but also on robust enforcement. The country cannot afford a bifurcated crypto economy—one governed by law and the other operating in legal grey zones.
