Govt’s move to make crypto industry compliant, a timely act

Even as Silicon Valley Bank (SVB) contagion sets stage for a global debate, the crypto experts in the country are hopeful that the new regulations introduced by the government will help protect the interest of the investors in the country to a great extent in future

The crypto industry has welcomed the government’s move to make crypto industry compliant in India. The industry feels that it is a welcome move under the Anti- Money Laundering Laws. Prevention of Money Laundering Act (PMLA) guidelines introduced by the Government of India have been made effective from March 10.

The Ministry of Finance has recently extended the applicability of certain compliance obligations under the PMLA, 2002, to various service providers in the virtual digital asset ecosystem (virtual asset service providers or VASPs), says a study by Vidhi Centre for Legal Policies.

The PMLA stipulates measures to prevent money laundering and also provides for the confiscation of property involved in money laundering. In the recent past, authorities (such as the Directorate of Enforcement) have taken recourse under the PMLA against different VASPs in India including issuing orders freezing their assets, it adds.

After the historical judgment of March 2020 by Supreme Court of India, regulations around crypto assets have been in a grey area.

“We have witnessed some important events recently, like a formal tax regime for digital assets and bringing all crypto businesses under the Prevention of Money Laundering Act 2002, which paints a positive picture of crypto regulations in India”, says Manan Vora, SVP of Business Operations & Strategy at Liminal.

However, whenever any industry is bombarded with speedy regulations, the industry takes some time to align itself with the latest rules and regulations. The future of crypto in India will largely depend on how quickly businesses adapt to these new regulatory guidelines and innovate their businesses at the same time.

According to Vora, “We are at the cusp of the biggest change after the industrial revolution, which will see the amalgamation of Web2 and Web3 companies. The transition from web2 to web3 has already begun, and we are witnessing a paradigm shift in the way companies are imbibing Web3 technology and deploying it at the core of their operations.”

As India moves deeper into the digital asset ecosystem, we will require impeccable security for user funds and world-class crypto custody solutions. The recent events like the FTX collapse are a grim reminder that we cannot afford single-point failures, and decentralised organisations are the future.

The industry is still trying to gauge the impact of the Silicon Valley Bank collapse, and we will get clarity on the magnitude of the problem in the coming weeks.

Rajagopal Menon, Vice President, WazirX, says, “The Indian crypto industry is at crossroads - the aggressive taxation imposed by the government has dampened sentiments of the industry. Bulk of the trading volumes have shifted to foreign exchanges leaving Indian companies at a severe disadvantage.”

The sentiment had shown some signs of revival with Bitcoin and Etheruem moving up by as much as 5 per cent this year but the banking crisis in the US has removed the wind from the sails.

While these are short term issues, the general outlook for the industry remains very positive. Crypto has moved from being magic internet money used by nerds to more broad based adoption by the general public. In countries like Venezuela, Lebanon and Nigeria, crypto has been an absolute life saver. There will be many trials along the way, but the future is bright, the future is crypto.

The SVB contagion has set the stage for a global debate. Centralisation or Decentralisation. Crypto experts argue that if a centralised bank of the scale of SVB can bite the dust then decentralisation should be the answer.

Whenever we see a crypto fiasco, we have also seen that it kicks its wounds and is back in the fray stronger and with minimal impact. But when a bank goes down it impacts an entire ecosystem that has ramifications right through to macro and micro levels. The bad boy of crypto- Bitcoin, all of a sudden is now being seen as a great hedge option driving investors -retail and institutional who find this a great hedge and a mitigation strategy, quips Raj A Kapoor, Founder, India Blockchain Alliance.

The current events of Silicon Valley Bank and PMLA implementation didn’t have any negative impact on crypto community in India, Shivam Thakral, CEO of BuyUcoin said. BuyUcoin has witnessed, he goes on, a jump of 10 per cent in trade volume as compared to last month.

As per the recently introduced government’s guidelines on PMLA, businesses are required to comply with the certain pillars of anti-money laundering and counter-terrorist financing, including but not limited to Travel Rule, Transaction Monitoring, Suspicious Transaction Reporting and Record Keeping.

To adhere to these guidelines, Liminal has updated its platform to come up with a state-of-the-art infrastructure by partnering with leading providers to ensure that every transaction processed via Liminal is secure and compliant. Under this update, any web3 business/project or exchange onboarding Liminal can be assured that their business is compliant with the new PMLA guidelines.

Commenting on the new update, Akash Bansal, CEO of Flitpay and Liminal user, said, “Complying with AML and Travel Rule compliance comes across as a very daunting task. The latest update from Liminal’s wallet infrastructure is a much-needed addition which will ensure that we are compliant with the PMLA guidelines.”

The general outlook for the industry remains very positive. Crypto has moved from being magic internet money used by nerds to more broad based adoption by the general public. In countries like Venezuela, Lebanon and Nigeria, crypto has been an absolute life saver. There will be many trials along the way, but the future is bright, the future is crypto

We are looking forward to working with Liminal and using these new tools to ensure that we are compliant with the newly released PMLA guidelines. Liminal’s regulatory readiness program has always helped us stay compliant in this continuously evolving regulatory landscape, he added.

Not to mention, the sudden collapse of Silicon Valley Bank was due to its overcautiousness and under undermining concentration risks in deposits throws an insight into newer challenges that can emerge in the fast-changing scenario for Indian banks.

BCG, a consultancy firm, lists several factors which banks should look into for their risk management. As per the report, stress testing should be conducted across all risk siloes, scenario analysis capabilities must be improved, liquidity should not be mistaken for cash, test asset monetization assumptions must be undertaken, concentration risk in the deposit book should be better understood and above all, banks must establish playbooks for a liquidity crisis.

Even for banks who have different profiles from SVB, the crisis is a wake-up call to further strengthen the approach to risk management and better prepare to respond to crisis in a well-coordinated and tested fashion.

One can only hope that the government’s PMLA guidelines will be able to bell the cat in days to come.