Why doesn't the crypto industry have access to CKYC despite complying with KYC norms?

The crypto industry in India is growing rapidly, but regulatory disparities remain a major challenge. Crypto exchanges and wallet service providers are required to comply with Know Your Customer rules under the Prevention of Money Laundering Act, 2002. They have to verify the identity of users, keep a record of all transactions, and report suspicious activities to the Financial Intelligence Unit India (FIU-IND). Despite this, these platforms are not included in the Central KYC (CKYC) system, making the KYC process complex and expensive for them.

What is CKYC

The Central KYC Registry is a government database that allows financial institutions to verify the KYC information of customers from one place. This not only saves time but also increases security and efficiency. Currently, access to CKYC is only provided to financial institutions that are regulated by the Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), Insurance Regulatory and Development Authority (IRDA), and Pension Fund Regulatory and Development Authority (PFRDA). Although crypto platforms are also considered ‘reporting entities’ under PMLA, they are still excluded from this facility.

Disadvantages of not having access

Lack of CKYC access requires crypto platforms to manually verify the identity of users, making the process slow and costly. While traditional financial institutions get robust KYC and fraud prevention tools, crypto platforms are not provided with these facilities. This not only increases their operational costs but also limits their ability to prevent fraud. India has made significant progress in the field of fintech, but the policy of keeping the crypto industry separate from traditional financial institutions is hampering the growth of this sector.

What does the crypto industry want

A high-level committee was formed under the chairmanship of former Finance Secretary TV Somanathan to integrate KYC rules. But so far this discussion has not included virtual asset service providers (VASPs) such as crypto exchanges. The crypto industry is not demanding any special concessions but wants equal and fair access to the existing regulatory framework. If all financial institutions, including VDAs, are brought under the same compliance standards, then this system can become more transparent and effective.

These will be the benefits.

Giving crypto platforms access to CKYC will benefit not only regulators but also businesses and users. This will enable crypto companies to follow AML and KYC standards like banks and other financial institutions, ensuring greater transparency. Also, the onboarding process will be easier for users and consumer confidence will also increase due to stronger security and monitoring. However, they will be able to keep better surveillance and will prove to be more effective in preventing money laundering and fraud.

The law will also be strengthened

India's crypto ecosystem is still developing, but it needs a strong and transparent regulatory system. If the government includes crypto platforms in the CKYC system, it will not only strengthen anti-money laundering (AML) measures but will also increase people's confidence in crypto. The government should adopt a fair and inclusive policy to promote innovation so India's digital asset sector can move ahead in the whole world

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