Cryptocurrency regulation: After a four-month ban, the Financial Intelligence Unit of India has approved the applications of Binance and KuCoin to register for trading in the country. These offshore currency exchange companies will now register as virtual asset service providers. Binance, the world’s largest crypto exchange, has been granted permission to trade after completing due diligence and paying a fine of Rs 16.71 crore. Meanwhile, the ban on KuCoin was lifted in March after they paid a penalty of Rs 34.5 lakh. This development is expected to boost India’s burgeoning cryptocurrency market.
Before the ban, Binance accounted for the largest share of crypto holdings in India, valued at $4 billion. This predominance was partly due to Binance’s disregard for the law requiring a 1% TDS deduction at source. Since this allowed traders to save on this amount, many preferred Binance over other platforms.
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Ban on Binance and KuCoin
In December 2023, India suspended operations of nine offshore exchanges, including KuCoin and Binance, as they were not registered under FIU-IND. These entities also failed to comply with the Prevention of Money Laundering Act (PMLA), 2002, which led to a government order in January to block their URLs in India. Consequently, apps associated with these exchanges, such as Binance, KuCoin, Huobi, Kraken, Gate.io, Bittrex, Bitstamp, MEXC Global, and Bitfinex, were delisted from Apple and Google’s app stores.
Following the ban, Binance reportedly engaged in negotiations with the government to revoke the ban, but the government insisted on compliance with the rules. It was previously reported that Binance was prepared to settle taxes and penalties but was not ready to meet PMLA norms.
Govt’s cryptocurrency dilemma
The Indian government has consistently expressed scepticism towards cryptocurrency assets, citing risks such as terror funding and drug financing due to uneven regulations across countries. Recently, Finance Minister Nirmala Sitharaman had emphasised these risks.
The global cryptocurrency market is rapidly evolving, and India’s regulatory adjustments are partly a response to these changes. Nations are increasingly recognising the necessity of robust crypto regulations to safeguard investors and prevent financial crimes. This global trend towards stricter regulation is influencing India’s strategies and might help align its policies with international standards, thereby enhancing global cooperation and stability in the financial sector.
India’s decision to allow Binance and others to resume operations follows its G20 presidency, during which it led efforts to create a global regulatory framework for crypto-assets. The G20 nations also supported the Financial Stability Board’s (FSB) recommendations for regulating and supervising crypto-assets and global stablecoin arrangements. Additionally, they endorsed the swift implementation of the Crypto-Asset Reporting Framework (CARF) and updates to the Common Reporting Standard (CRS). CARF mandates countries to automatically share tax information on cryptocurrency transactions, enhancing transparency and reducing the potential for tax evasion.
While cryptocurrency trading has long been a largely unregulated sector, governments worldwide are now working to regulate these entities. Crypto businesses operating in India, whether domestic or foreign, must comply with the law. This includes companies that enable trading of crypto for fiat currency, transfer crypto assets, store or manage crypto for others, or offer any service controlling crypto assets. The government has made it clear that cryptocurrencies and their trading platforms must adhere to legal requirements. Following these demands, multiple platforms, including CoinDCX, WazirX, Coinswitch, and Zebpay, have registered with the FIU.
The regulatory measures being instituted are not merely about compliance; they also aim to harness the economic potential of the crypto market. By fostering a secure and regulated environment, India seeks to attract more legitimate investments and innovations in the sector. This approach is expected to contribute to the broader economic growth by integrating cutting-edge financial technologies within the traditional economic framework.
Global financial regulators, including those in the US, the UK, and Hong Kong, have started approving crypto-backed securities for trading in traditional financial markets. Binance now plans to offer localised payment solutions, establish a dedicated team in India, and invest further in the country’s blockchain infrastructure.
Following the announcement of Binance’s reinstatement, industry stakeholders welcomed the move, noting that it would significantly enhance the credibility of India’s crypto industry. Moreover, Binance’s return is expected to mature the local crypto market due to its advanced technology and greater liquidity compared with Indian exchanges. The company is re-entering India at a time when popular currencies like Bitcoin and Ethereum are reaching all-time highs.
However, not everyone is optimistic about the return of these global players, as domestic companies fear a possible decrease in transaction volumes on their platforms. As Binance, the world’s largest crypto exchange by asset holdings and daily trade volume, begins operations again, local firms are bracing for potential impacts.