Uncertain Future for Foreign Crypto Exchanges in India

The Financial Intelligence Unit (FIU) of India’s Ministry of Finance has sent a notice of noncompliance to several foreign cryptocurrency exchanges, including Binance, Kraken, and Bitfinex, for illegally operating in the country. The notice requires the exchanges to comply with Indian Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations within 12 days. Following the notice, Apple’s App Store and Google’s Play store in India blocked the listed exchanges, and access to their URLs and alternate URLs was also banned. This move has shocked Indian crypto traders who had turned to foreign exchanges to avoid the high tax on cryptocurrency trading imposed by the Indian government.

According to a report, around $4 billion worth of crypto assets are stuck on offshore platforms, with Binance holding nearly 80% of this amount. The use of foreign crypto exchanges by Indian traders is estimated to cost the Indian government approximately $361 million in tax revenue each year. This recent action from the Indian government highlights the lack of clear regulations for domestic crypto exchanges to follow.

There have been numerous instances where Indian crypto exchanges have failed to allow users to withdraw their funds, which has led to criticism of the government for focusing on foreign exchanges before regulating domestic ones. Some believe that the FIU’s action is overdue and necessary to prevent foreign exchanges from taking advantage of Indian exchanges and evading taxes.

India has called for global collaboration on crypto regulations but has yet to implement clear regulations at home. It is a signatory to the G20 Delhi declaration, which sets a roadmap for crypto regulations among G20 countries by 2025. This lack of clear regulations has deterred foreign crypto companies from entering the Indian market, despite its potential as one of the fastest-growing crypto markets during the 2021 bull cycle.

Sumit Gupta, CEO of Indian crypto exchange CoinDCX, believes that the FIU’s action is a step toward enforcing regulations. He suggests that offshore exchanges can register and serve Indian customers under FIU guidelines, which will protect investors and prepare the industry for supportive regulations. Many foreign exchanges, including Binance and Kraken, have not commented on their plans in India, while others have stated their commitment to adhering to local regulations.

While the FIU registration for foreign crypto exchanges may begin after the general elections in July 2024, it remains uncertain how the situation will develop and whether foreign exchanges will be able to reenter the Indian market.