New KYC Rules in India: Crypto Exchanges Tighten Scrutiny

India’s Financial Intelligence Unit (FIU) is preparing to significantly tighten its oversight of cryptocurrency platforms and their users. The new requirements are aimed at increasing the transparency of the virtual digital asset market and bringing it into compliance with anti-money laundering and combating the financing of illegal activities (AML) regulations.

According to the regulator’s updated recommendations, a key element will be tightening the customer identification (KYC) procedure. Users of licensed crypto exchanges will be required to verify their identity with real-time selfies. These images will be analyzed by specialized software capable of tracking eye and head movements. This measure is intended to prevent the use of deepfakes and other counterfeits created using artificial intelligence technologies.

In addition to biometric verification, crypto platforms are required to collect an expanded set of technical data. This will include clients’ IP addresses, geolocation information, and the exact time of account registration. This data will allow regulators to more effectively monitor suspicious activity and identify potential violations of the law.

The FIU is paying special attention to financial verification. Exchanges will be required to verify users’ bank accounts by making small test transfers. Clients are also required to provide government-issued photo ID and undergo standard contact verification, including verifying their email address and mobile phone number.

The tightening of controls comes amid intense debate about cryptocurrency taxation in India. Recently, representatives of the country’s tax authority discussed with parliamentarians the challenges of collecting taxes on digital asset transactions. According to the Income Tax Department (ITD), decentralized financial services and anonymous crypto wallets significantly complicate the tracking of traders’ income.

The FIU has previously demonstrated a tough approach to the market: in October, the regulator demanded that Indian users restrict access to 25 virtual digital asset service providers. The reasons cited included operating without the required registration, non-compliance with AML regulations, and the failure to report suspicious transactions. The new rules could be another step toward stricter and more centralized regulation of the crypto industry in the country.