India’s exchanges to identify buyers receiving crypto wallet transfers

As reported in the Economic Times, cryptocurrency exchanges in India are cracking down on anonymous transactions and looking to apply proof of identification rules that banks follow to approve real payments and wallet transactions.

This action would place more liability with digital payment senders and illicit online businesses that use crypto payments, exposing offenders committing money laundering offences to conceal activities such as drug trafficking or gambling.

Banks are the missing administration with regards to approving cryptocurrency or bitcoin transactions, as they standardly verify legitimate-only payment requests from senders. While frameworks exist to govern buyers and sellers in local exchanges, banks are left out altogether of the digital crypto market and private wallets receiving cryptocurrencies are wildly unregulated.

In the context, advancing capabilities of the World Wide Web – Web 3.0 and the metaverse – is facilitating and allowing another option for blockchain based payment methods.

India exchanges are introducing identity verification of those behind private wallets receiving cryptocurrencies to track elusive payments and identify offences that take place in the endless internet domain.

Crypto exchanges also follow Know-Your-Customer procedures like banks which involve requesting identity documents and proof of identity during the onboarding process. With the incoming identity rules, the regulation landscape is expected to change.

“Discussions are underway regarding the type of identification required, how it should be provided, and the measures exchanges can take to authenticate the provided information.”

Jaideep Reddy, at Trilegal, said:

“Currently, platforms are under scrutiny when users conduct suspicious withdrawals to external ‘un-hosted’ wallet addresses”. He shared the action which is currently being taken to freeze untrusted bank accounts in suspected “high-risk” transactions to private holders’ wallets and overseas – but, he said, this causes “collateral damage” to both users and the platform.

“Establishing clear guidelines for withdrawals to un-hosted wallet addresses aligns with the Financial Intelligence Unit (FIU) guidelines, which advocate enhanced due diligence for such transactions.”

Law enforcement agencies became alerted to potential criminal activities which funds or proceeds were being converted to cryptocurrencies and transferred outside of the country to foreign wallets.