During the past few months, Indian banks have been notifying their customers of the risks involved in cryptocurrency trading, with some even terminating all cryptocurrency-related activities. There have been instances when the customers’ funds have had to be traced in order to understand what happened to those funds overnight as the bank terminated all cryptocurrency-related activities. In doing so, banks cited the April 6, 2018 notification (“Notification”), issued by the Reserve Bank of India (“RBI”) which prohibited RBI regulated entities from dealing in virtual currencies. This, however, is not the legal position anymore, as the Notification was struck down by the Supreme Court of India for being unconstitutional in Internet and Mobile Association of India v. Reserve Bank of India on March 5, 2020.
Even then, Indian banks have often cited the Notification in justifying the termination or cautioning customers against cryptocurrency-related activities. Indian bank’s incorrect interpretation of the Notification has now been clarified by the RBI through a notification on March 31, 2021, titled “Customer Due Diligence for transaction in Virtual Currencies” (“VC Notification”).
In the VC Notification, the RBI states that regulated entities may not cite the Notification for cautioning their customers in dealing virtual currencies, as it is no longer valid. Banks, and other regulated entities, however, will be required to carry out customer due diligence in line with anti-money laundering laws of India, know-your-customer guidelines, and the Foreign Exchange Management Act for overseas remittance.
BlockSuits Comments
The VC Notification comes as a ‘customer due diligence’ caution, and not as a regulation of virtual currencies provision. The VC Notification has caused a wave of positivity within the Indian cryptocurrency community, however, should not be (yet) confused with a regulatory understanding of cryptocurrencies. Recently, the Ministry of Corporate Affairs has also amended certain provisions, of the Companies Act, to incorporate disclosures in cryptocurrency investments. However, uncertainties surrounding cryptocurrency shall still stand, until and unless the provisions of the Cryptocurrency and Regulation of Official Digital Currency Bill has been notified, and the meaning of ‘private cryptocurrencies’ has been clarified.
Authored by Shivani Agarwal, Founder, and Samaksh Khanna, Co-founder.
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