Reserve Bank of India Clarifies 2018 Cryptocurrency Circular Amid Banking Concerns

Reserve Bank of India Clarifies 2018 Cryptocurrency Circular Amid Banking Concerns

The Reserve Bank of India (RBI) has issued a clarification regarding its 2018 circular on cryptocurrencies, emphasizing the importance of regulatory compliance while addressing misconceptions among banks. The move comes after several Indian banks warned customers against engaging in cryptocurrency transactions, citing outdated directives.

RBI’s Clarification on the 2018 Circular

In its notification, the RBI clarified that its 2018 circular prohibiting banks from facilitating cryptocurrency transactions was set aside by the Supreme Court of India in March 2020. Therefore, the circular is no longer valid and cannot be cited or enforced.

“The circular is not valid from the date of the Supreme Court order and hence cannot be cited or quoted,” said the RBI.
Read the notification here.

This clarification directly counters the actions of some Indian banks that have warned customers against cryptocurrency trading based on the 2018 directive.

Due Diligence and Compliance

The RBI reiterated that banks and regulated entities must carry out customer due diligence in line with:

1. Know Your Customer (KYC) Standards
2. Anti-Money Laundering (AML) Guidelines
3. Combating Financing of Terrorism (CFT) Provisions
4. Obligations under the Prevention of Money Laundering Act (2002)

Additionally, banks are required to ensure compliance with relevant provisions under the Foreign Exchange Management Act (FEMA) for overseas remittances related to cryptocurrency transactions.

Widespread Crypto Adoption in India

Despite regulatory ambiguity, India has witnessed a surge in cryptocurrency adoption. Millions of Indians have entered the crypto market, driven by the global boom in digital assets.

Nischal Shetty, co-founder and CEO of WazirX, welcomed the RBI’s clarification, stating:

“Doing due diligence on a business is what banks do for all businesses. This notification clarifies that RBI hasn’t asked any banks to stop their services.”

Shetty’s comments highlight the importance of banks adopting a fair and transparent approach to servicing cryptocurrency businesses and users.

Implications for Banks and Crypto Users

The RBI’s clarification addresses the following key issues:

• Banks’ Responsibilities: Banks cannot restrict services to cryptocurrency users or businesses based on the invalidated 2018 circular. Instead, they must focus on due diligence and compliance with existing regulations.
• Crypto Transactions: Cryptocurrency users can continue to trade and invest without fear of arbitrary restrictions, provided they adhere to KYC and AML norms.
• Regulatory Ambiguity: While the clarification provides temporary relief, the lack of a clear regulatory framework for cryptocurrencies in India remains a challenge.

What’s Next for Cryptocurrency Regulation in India?

The Indian government has yet to finalize its stance on cryptocurrencies. While the Supreme Court’s 2020 decision lifted the banking ban, uncertainties persist regarding the regulatory and legislative future of digital assets in the country.

As the crypto market grows, the Indian government and RBI are expected to focus on:

1. Establishing a Comprehensive Crypto Framework: Balancing innovation and investor protection.
2. Addressing Security Concerns: Preventing misuse of cryptocurrencies for illicit activities.
3. Facilitating Global Compliance: Aligning domestic policies with international standards for cryptocurrency regulation.

Conclusion

The RBI’s clarification of its 2018 cryptocurrency circular is a significant step toward addressing misconceptions and ensuring fair treatment of cryptocurrency users in India. While regulatory uncertainty persists, the move underscores the need for a comprehensive and balanced approach to digital asset regulation.

Stay updated on the latest developments in cryptocurrency and financial regulations by exploring our article on latest news, where we analyze global trends shaping the industry.