The Ministry of Finance (Department of Revenue) vide notification dated 07 March 2023 has notified the following activities when carried out for or on behalf of another natural or legal person in the course of business as an activity under Section 2 Clause (sa) Sub-clause (vi)of Prevention of Money Laundering Act, 2002 to include the following:
Exchange between virtual digital assets and fiat currencies;
Exchange between one or more forms of virtual digital assets;
Transfer of virtual digital assets;
Safekeeping or administration of virtual digital assets or instruments enabling control over virtual digital assets; and
Participation in and provision of financial services related to an issuer’s offer and sale of a virtual digital asset.
Further, the definition of VDA shall be same as 47A of Section 2 of the Income Tax Act, 1961
Having regard to the above, the notification makes crypto exchanges and related entities liable as a 'reporting entity' under the PMLA, thereby requiring mandatory compliances with (among others): (a) customer verification (KYC- offline or online as maybe required) (b) maintenance of records and furnishing of the same; (c) enhanced due diligence prior to entering into a transaction; and (d) making records available for audit if so directed.
Our view:
The Notification will now require crypto currency exchanges to mandatorily undertake KYC measures and ensure compliances. In the past exchanges were maintaining entries only for record purposes and these practices were mostly self regulated by these entities.
This move of the government reflects upon the future of crypto currency exchanges and the regulation of such entities thereof.
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