India’s Financial Intelligence Unit (FIU) is currently reviewing registration requests from four foreign crypto exchanges, with the potential approval of two by the end of Financial Year 2025. These exchanges will undergo thorough assessments of their operations, specifically regarding non-compliance issues, before being allowed to operate in India. The approval process follows major regulatory changes in India, such as the Finance Ministry’s mandate for all cryptocurrency exchanges to register as reporting entities with the FIU in 2023. Non-compliance with registration and AML requirements resulted in enforcement measures against nine prominent foreign exchanges, including blocking access to their websites and mobile apps.
Binance and KuCoin were the first foreign exchanges to successfully register with the FIU after paying penalties for their previous non-compliance. This successful re-entry paved the way for other offshore platforms to seek similar approvals, leading to an increase in interest from exchanges previously barred from operating in India. The four additional exchanges that filed registration requests with the FIU in June demonstrate a growing desire among global platforms to re-enter the Indian market, despite the regulatory challenges they may face.
India has emerged as a booming market for cryptocurrencies, with Chainalysis ranking the country as having the highest rate of adoption in 2023. Factors such as a tech-savvy young population and increasing smartphone penetration have contributed to the rise in cryptocurrency adoption in India. The number of registered crypto investors in India has seen a significant increase, reaching over 20 million in 2023 from 8.25 million the previous year. The country also generated over $1 billion in crypto-related revenue during this period, making it an attractive market for foreign exchanges looking to expand globally.
Despite the promising growth in the Indian crypto market, the regulatory environment remains stringent, especially for foreign exchanges. All crypto transactions in India are subject to a 1% tax deducted at source (TDS), and profits from crypto investments are taxed at a flat 30% rate. Additionally, the FIU is strict about compliance and conducts thorough due diligence before allowing any crypto exchange to operate in India. The ongoing regulatory challenges in the country pose obstacles for foreign exchanges seeking to enter the Indian market and cater to the growing demand for cryptocurrencies.
The potential approval of two foreign crypto exchanges by the end of Financial Year 2025 suggests a shifting regulatory landscape in India, with authorities working to accommodate global platforms while ensuring compliance with regulatory requirements. The recent registrations of Binance and KuCoin after paying penalties for non-compliance signal a willingness to engage with foreign exchanges within the regulatory framework. As India’s crypto market continues to evolve rapidly, it presents opportunities for foreign exchanges to tap into a vibrant ecosystem of crypto investors while navigating the regulatory complexities of the Indian market.
In conclusion, India’s evolving crypto landscape offers both challenges and opportunities for foreign exchanges seeking to operate in the country. The regulatory changes implemented in 2023 have set the tone for compliance and transparency in the Indian crypto market, with the FIU playing a key role in evaluating and approving foreign exchanges. As the number of registered crypto investors in India continues to grow and the market shows promising signs of expansion, foreign exchanges will need to navigate the regulatory landscape carefully to establish a presence and cater to the increasing demand for cryptocurrencies in the country.
