India Intensifies Crypto Oversight: FIU Orders Local Exchanges to Report OTC Trades Above $10,000

India’s Financial Intelligence Unit (FIU) has escalated its oversight of the cryptocurrency sector by demanding that three major domestic exchanges submit detailed records of over-the-counter (OTC) transactions exceeding $10,000. The directive, reported by Cryptopolitan, covers all such trades executed since January of this year, marking a significant step in the country’s efforts to bring crypto asset flows under formal regulatory scrutiny.

What the FIU’s Request Entails

The FIU’s request specifically targets OTC trades, which are privately negotiated transactions conducted outside of formal exchange order books. These trades are often used by high-net-worth individuals and institutional investors to move large sums without causing market disruption. By demanding transaction records, including information on beneficial owners, authorities aim to map fund flows that have historically operated in a regulatory gray area.

The three exchanges involved have not been named publicly, but the move signals that the FIU is now actively enforcing compliance obligations under the Prevention of Money Laundering Act (PMLA), which was extended to crypto exchanges in March 2023. Under those rules, exchanges must register with the FIU and report suspicious transactions, but the current request goes further by demanding retrospective data on specific trade types.

Why OTC Trades Are Under Scrutiny

OTC desks have become a focal point for regulators globally because they can facilitate large-value transfers with limited real-time visibility. In India, where crypto adoption has grown rapidly despite an uncertain tax regime, the lack of transparency around OTC trades has raised concerns about potential tax evasion, money laundering, and unaccounted capital flows.

The $10,000 threshold is notable. It aligns with international anti-money laundering (AML) standards set by the Financial Action Task Force (FATF), which recommends reporting for transactions above $10,000 or its equivalent. India, as a FATF member, is aligning its domestic crypto oversight with global norms, particularly as it prepares for a potential review of its AML framework.

Implications for the Indian Crypto Market

For exchanges, the FIU’s demand means enhanced operational burdens. They must now retrieve and compile historical OTC data, verify beneficial ownership details, and ensure records are accurate and complete. Non-compliance could result in penalties or suspension of operations, as the FIU has demonstrated increasing willingness to enforce its authority.

For traders and investors, the move signals that India is moving toward a more transparent crypto ecosystem. While some may view this as an intrusion, others see it as a necessary step toward legitimacy. Clearer regulatory frameworks could eventually attract institutional participation, which has been cautious due to policy uncertainty.

Broader Regulatory Context

India’s approach to crypto regulation has been evolving. In 2022, the government imposed a 30% tax on crypto income and a 1% tax deducted at source (TDS) on transactions, which dampened trading volumes. The Reserve Bank of India (RBI) has consistently expressed concerns about the risks crypto poses to financial stability. Meanwhile, the FIU has been building its capacity to monitor digital asset flows, including through partnerships with analytics firms.

This latest action is part of a broader global trend. The United States, European Union, and Singapore have all tightened OTC trade reporting requirements in recent years. India’s move places it among a growing list of jurisdictions demanding greater transparency in private crypto transactions.

Conclusion

The FIU’s demand for OTC trade data represents a concrete enforcement action that goes beyond existing registration requirements. By targeting retrospective data and beneficial ownership information, Indian authorities are signaling that they intend to leave no gaps in their oversight of crypto fund flows. For market participants, the message is clear: the era of informal, high-value crypto transfers operating below the regulatory radar is ending.

FAQs

Q1: Why is the FIU focusing on OTC trades specifically?
OTC trades are privately negotiated and do not appear on public exchange order books, making them harder to track. Regulators view them as a potential channel for money laundering and tax evasion, especially for high-value transfers.

Q2: What information will exchanges need to provide?
Exchanges must submit transaction records for all OTC trades over $10,000 since January, including details of beneficial owners — the individuals who ultimately own or control the assets involved.

Q3: What happens if exchanges do not comply?
The FIU can impose penalties, suspend operations, or take legal action under the Prevention of Money Laundering Act. Non-compliance could also affect an exchange’s ability to operate in India’s formal financial system.