The Compliance Gauntlet Tightens
India’s Financial Intelligence Unit (FIU-IND) has officially ended the era of static KYC for crypto users. In updated guidelines issued Jan. 8 and reviewed by the Press Trust of India, the regulator now mandates “live selfie” verification with liveness detection and precise geolocation tracking for all new account openings. The move classifies crypto exchanges as Virtual Digital Asset (VDA) service providers under the Prevention of Money Laundering Act (PMLA), imposing banking-grade surveillance on the sector.
The immediate market reaction reflected the added friction: WazirX’s utility token (WRX) dropped to $0.051 (-7%) as traders priced in the potential slowdown in user onboarding.
Liveness, Coordinates, and the Penny Drop
The new framework explicitly targets deepfakes and identity spoofing. Exchanges can no longer accept static photo uploads. Instead, they must deploy software that detects eye blinking or head movement to confirm the user is physically present.
More intrusive is the location requirement. Platforms must now capture and store:
- Geolocation: Exact latitude and longitude at the moment of onboarding.
- Digital Footprint: The user’s IP address and a precise timestamp.
- Financial Linkage: A “penny-drop” verification, where the exchange sends a refundable INR 1 transaction to the user’s bank account to cryptographically verify ownership.
The RE [Reporting Entity] shall ensure that the client whose credentials are being furnished is the same individual who is actually accessing the application.
The Privacy Purge
Beyond onboarding, the FIU effectively outlawed privacy-preserving infrastructure. The guidelines “strongly discourage” exchanges from listing anonymity-enhancing tokens (AETs) and strictly prohibit facilitating transactions involving crypto mixers or tumblers. This aligns India’s domestic policy with the FATF Travel Rule, but places a heavy burden on local exchanges to blacklist legitimate protocols that prioritize privacy.
Institutional Context
This update signals a shift from ambiguity to enforcement. By mandating a secondary government ID (Passport or Voter ID) alongside the standard PAN card, the FIU is closing the loop on tax evasion and “mule” accounts. While this increases operational costs for Indian exchanges like CoinDCX and WazirX, it likely cements their status as the only viable on-ramps for institutional capital in the region, provided they can survive the user churn.
