Crypto News: The KYC of their customers and platform users will now be needed of cryptocurrency exchanges and intermediaries dealing with digital assets that exist only in the digital realm. On March 7, the Finance Ministry said that under the Prevention of Money Laundering Act, organisations trading in virtual digital assets will now be regarded as “reporting entities” (PMLA). For the purposes of the PMLA, “reporting entities” are any organisations that participate in financial activities relating to an issuer’s offer and sale of a VDA, exchange of VDAs for Fiat currencies, transfers of VDAs, safekeeping and administration of VDAs, etc.
According to the anti-money laundering law, reporting institutions are required to keep KYC records, which are documentation that prove the identities of their clients and beneficial owners, as well as account records and client-related business correspondence. Rajat Mohan, senior partner of AMRG & Associates, stated that all such intermediaries must keep a record of every transaction and that this record must be kept for at least five years.
“The Government seems to be working overtime in formulating a policy around the Crypto sector. These regulations would mandate all intermediaries to keep transactional records of VDA. In the next few years, we may see more such regulations for the industry, allowing organised players to enter the sector with bigger investments,” Mohan said. Currently, apart from banks and financial institutions, entities engaged in real estate and jewellery sectors as well as casinos are considered ‘reporting entities’ under the PMLA. Every reporting entity is required to maintain a record of all transactions, including the record of all cash transactions of more than Rs 10 lakh.
Also, they are required to maintain a record of all series of cash transactions integrally connected to each other, which have been individually valued below Rs 10 lakh, where such series of transactions have taken place within a month and the monthly aggregate exceeds Rs 10 lakh, besides other records. As of January 31, the enforcement directorate has attached Rs 936 crore proceeds of crime and arrested 5 five persons related to cryptocurrency fraud. Crypto investing app CoinSwitch co-founder Ashish Singhal said the notification to bring VDA transactions under the PMLA is a positive step in recognising the sector.
“This will strengthen our collective efforts to prevent VDAs from being misused by bad actors. @CoinSwitch has always prioritized KYC & responsible use of crypto,” Singhal tweeted. Globally, digital-asset platforms are required to follow anti-money laundering standards similar to those followed by other regulated entities like banks or stock brokers. Digital currency and assets like NFTs (non-fungible tokens) have gained traction globally over the last couple of years.
Trading in these assets has increased manifold with cryptocurrency exchanges being launched. However, India till last year, did not have a clear policy on regulating or taxing such asset classes. The Budget for 2022-23 brought a 30 per cent tax on income from transactions in VDAs. Also, to bring such assets under the tax net, a 1 per cent TDS (tax deducted at source) on transactions in such asset classes above a certain threshold was imposed. Gifts in crypto and digital assets were also taxed.