India still has no KYC rules for cryptocurrency. Exchanges have been compelled to draft their own set of rules to control the trade business and keep it clean. Nishal Shetty CEO of WazirX said that we only pay through bank channels. He said due to the lack of KYC policies we try to get investors from places where KYC protocols are followed. He added that they also try to get the address or PAN card of the customer to maintain a profile of the customer.
One of crypto writers in India wrote that crypto is often used by criminals and money launderers. But the government has shown no interest in developing KYC rules for crypto exchanges. Now, this claim could mean a lot of things but let’s just stick to the negligence of the Indian government.
The exchanges try their best to avoid any foul play by adopting certain methods but loopholes remain there. The foul users of crypto are always looking for such loopholes.
Some exchanges are now using the penny drop system to get somewhat data of their customer. Through the penny drop system, the exchanges transfer a minimal amount like 1 rupee in the account of the customer. If the account is genuine, the transaction goes through and the exchange gets the name of the user as registered with the bank.
NeerajKhandewal of CoinDCX said for corporate clients having higher trade-limits more documents are demanded like AOA, board resolution, etc.
Some cryptocurrencies are using culprit detecting software to identify their addresses and block them. Khandelwal said that they use popular crypto anti-money-laundering tools to identify previous offenders and blacklisted users.
One CEO of a crypto Exchange informed that these blacklisted users are not afraid of as there is no legal basis for that in India.
Gaurav Dahake believes that the KYC rules will not end the use of crypto for illegal purposes. He said cryptocurrencies and Bitcoin do not necessarily need an exchange to transfer and that is what makes it dangerous. Bitcoins and cryptocurrencies can be traded physically using a hard disk called “cold wallets” in the crypto world. Two users willing to exchange assets do not need an exchange but just each other or a special crypto key. Dahake further said that such peer-peer connections are really difficult to control considering the decentralized nature of the blockchain.
Cryptocurrency is like other investments, such as FDs, stock, and bonds. They don’t have to be kept in a bank or Demat account. They can be held outside and therefore can be traded outside in the real world.
There have been rumors, that government started drafting KYC rules after the decision of the Supreme Court to lift the ban. Only time will tell whether any work is being done on it or not.