A Strong Step Toward Transparency: India Brings Crypto Under Full AML & Strict KYC Rules In 2026

A Strong Step Toward Transparency: India Brings Crypto Under Full AML & Strict KYC Rules In 2026

Introduction

India has taken a significant step toward transparency by implementing the crypto AML framework, including strict Know Your Customer (KYC) requirements for all cryptocurrency platforms operating in the country. The Financial Intelligence Unit-India (FIU-IND) has classified all Virtual Digital Asset Service Providers (VASPs) as reporting entities under the Prevention of Money Laundering Act (PMLA), strengthening exchange compliance and investor protections.

What Is FIU‑IND?

The Financial Intelligence Unit-India (FIU-IND) collects, processes, and analyzes information about suspicious financial transactions. It works to strengthen anti-money laundering and counter-terrorism enforcement and reports directly to the Finance Ministry’s Economic Intelligence Council.

Crypto Comes Under Full AML Framework

Under the updated guidelines, all cryptocurrency exchanges and virtual asset platforms serving Indian users are now treated as reporting entities under the crypto AML regulations of the PMLA. This means they must adhere to the same compliance standards previously expected of banks and financial institutions.

The FIU-IND framework requires platforms to enhance AML controls, including real-time reporting of suspicious transactions, thorough record-keeping, and stringent reporting requirements. Failure to comply may result in financial penalties and legal action under the provisions of the PMLA.

Strict KYC Rules Explained

One of the most significant parts of India’s crypto oversight policy is the introduction of strict KYC rules. These include:

• Mandatory live selfie verification with biometric and liveness checks.
• Collection of geolocation data, IP address, date, and timestamp at account creation.
• Bank account verification via a penny‑drop process.
• Submission of PAN along with an additional government‑issued ID (passport/Aadhaar/voter ID).
• Enhanced due diligence for high‑risk users, including Politically Exposed Persons and individuals from FATF‑blacklisted regions.

These measures significantly raise the onboarding bar compared to traditional crypto KYC processes, ensuring better traceability and authentication.

Why This Move Matters for India

Bringing crypto fully under the crypto AML scope enhances transparency and accountability in a sector previously seen as loosely regulated. By mandating stronger KYC checks and detailed AML compliance, regulators intend to curb illicit activities such as money laundering, hawala transfers, and terrorist financing that could otherwise exploit digital assets.

This step also aligns India with global financial standards for AML/CFT (Counter‑Financing of Terrorism) compliance and sends a clear signal that the nation is serious about regulating digital finance responsibly.

Impact on Crypto Exchanges & Users

• Impact on Crypto Platforms

Exchanges now face increased compliance costs and operational requirements. Platforms must integrate stricter checks, maintain detailed logs of customer identity and transaction histories (for at least five years), and actively monitor high‑risk activities. Noncompliance has already led to penalties—including fines in the range of INR 28 crore during the 2024–25 fiscal year.

Additionally, 49 exchanges—45 India‑based and 4 offshore—have registered with FIU‑IND under the AML framework, demonstrating industry adaptation to the new rules.

• Impact on Retail & Institutional Investors

For users, stricter crypto AML and KYC rules mean longer onboarding, additional documentation steps, and potentially higher costs passed on by exchanges. However, these same measures also help create a safer trading environment, reduce fraud risk, and provide greater legitimacy for institutional investors considering entry into Indian crypto markets.

Positive Outcomes for the Crypto Industry

Despite initial friction, the formal crypto AML framework brings several clear benefits:

• Greater investor protection through traceable, compliant platforms.
• Increased transparency helps deter illicit finance.
• Institutional confidence may grow due to clearer regulations.

These elements foster a more mature digital asset ecosystem and could encourage long‑term investment in the Indian crypto sector.

Concerns & Challenges

Nevertheless, the stricter rules are not without criticism. Some industry observers point out that tighter onboarding could discourage casual users, slow down account creation, and increase the cost of compliance—especially for smaller exchanges.

Privacy advocates also argue that detailed data retention and geo‑tracking measures might raise concerns about user privacy and data security. However, regulators emphasize that such requirements are necessary to combat financial crime effectively.

India’s Crypto Regulation: The Bigger Picture

India’s move to implement stringent crypto AML and KYC measures fits into a broader pattern of tightening regulations globally. While other jurisdictions adopt similar AML frameworks and risk‑based monitoring, India’s decision reflects a push to integrate virtual assets into the mainstream financial system with clear legal boundaries.

The rollout of these rules also supports ongoing discussions about licensing frameworks and digital asset policies at the national level.

What Happens Next?

Looking ahead, the industry is likely to see continued evolution as regulators refine guidelines and possibly introduce additional measures to address stablecoins, real‑world asset tokenization, and cross‑border compliance. Institutional participation, as well as more robust risk management practices, may further solidify India’s position in global digital finance.

Conclusion

India’s decision to bring cryptocurrency platforms under full crypto AML scope with strict KYC rules is a significant step toward transparency. While the new framework raises compliance burdens for exchanges, it improves market integrity, protects investors, and aligns India with global financial standards. As the regulatory landscape evolves, stakeholders must strike a balance between compliance and innovation to foster a secure and dynamic cryptocurrency ecosystem.