India Implements Stricter KYC Rules for Cryptocurrency Exchanges

India’s Financial Intelligence Unit (FIU) has announced tighter identity verification rules for cryptocurrency exchanges to prevent money laundering and terrorist financing, according to the Press Trust of India.

Effective Jan. 8, the updated guidelines require exchanges to verify users with a live selfie capturing blinking to confirm authenticity, while recording their location, date, time, and IP address. Beyond the mandatory Permanent Account Number (PAN), exchanges must collect government-issued IDs such as passports, driver’s licenses, Aadhaar cards, or voter IDs, and confirm mobile numbers and email addresses via one-time passwords (OTPs).

Bank account ownership is validated using the “penny-drop” method, involving a refundable 1 rupee (INR) charge. High-risk users—including those connected to tax havens, FATF-listed jurisdictions, politically exposed persons, or certain non-profits—are subject to enhanced due diligence every six months.

Exchanges are prohibited from supporting initial coin offerings (ICOs) or initial token offerings (ITOs) and from using transaction-mixing tools like tumblers. All platforms must register with the FIU, report suspicious trades, and retain user data for five years. The FIU cited ICOs and ITOs as high-risk with limited economic rationale.

India classifies cryptocurrencies as virtual digital assets (VDAs) under the Income Tax Act, 1961. While citizens can trade VDAs on FIU-registered platforms, they cannot use them as legal tender for goods or services.