- The Financial Intelligence Unit India (FIU IND) issued warning letters to offshore virtual digital asset service providers (VDA SPs) for failing to comply with the Prevention of Money Laundering Act, 2002 (PMLA).
- The Ministry of Electronics and Information Technology was requested to restrict the URLs of these companies.
VDAs (Virtual Digital Assets)
- Virtual Digital Assets (VDAs) are digital forms of value such as cryptocurrencies and tokens. Cryptography and blockchain technology are used to secure them.
- Intangible and digital assets are only available in digital form and can be utilised for transactions, investments, or as a store of value.
- Decentralised: They typically operate independently of central authorities, making them appealing but also vulnerable to hazards such as money laundering. As a result, proposals for regulation and monitoring have been made.
Premise of Non-Compliance with PMLA
- Regulatory Changes in 2023: In March 2023, VDA SPs were subject to anti-money laundering and counter-terrorism financing regulations.
- VDA SPs were required to register, verify customer IDs, and keep financial transaction records under these regulations.
- Issue with Non-Registration: Non-compliant firms continued to serve Indian users without registering, avoiding the AML and CFT framework.
Purpose of PMLA Compliance
- Monitoring Financial Transactions: The PMLA’s goal is to track financial transactions in order to prevent money laundering and terrorist financing.
- Selective Compliance Advocacy: According to legal experts, FIU IND should only pursue compliance on firms that meet the March 2023 notification limits.
- KYC Advantages: Adherence to KYC standards is viewed as advantageous for VDA SPs, as it addresses concerns about anonymity and illegal usage of crypto assets.
Global Initiatives and Indian Enforcement
- Global Advocacy by India: India’s enforcement is consistent with its global efforts for cryptocurrency regulation, which include standards advocated by the IMF and the Financial Stability Board.
- Influence in the G-20: India’s participation in the G-20 has been critical in pressing for worldwide cryptocurrency regulation.
International Regulatory Environments
- Dubai’s Virtual Assets Regulatory Authority (VARA) Model: Dubai’s Virtual Assets Regulatory Authority (VARA) provides a comprehensive licencing structure that prioritises consumer safety and AML-CFT compliance.
- MiCA Regulation in the EU: The European Union’s Markets in Crypto-Assets Regulation (MiCA) focuses on transparency, disclosure, and monitoring, and requires service providers to be authorised.
- Regulatory Framework in the United States: The United States lacks a comprehensive national framework, however digital assets are covered by existing legislation such as the Bank Secrecy Act.
Considerations for Regulating Virtual Digital Assets (VDAs)
- BIS Policy Alternatives: The Bureau for International Settlements (BIS) recommends three policies: total prohibition, confinement, and control.
- Problems with an Outright Ban: Because crypto markets are pseudo-anonymous, an outright restriction may be unenforceable.
- Controlling flows between crypto and traditional financial systems is part of the containment strategy, but it does not address core flaws.
- Regulation Motivations: A multitude of causes inspire regulation, including the need to ensure that regulatory benefits outweigh regulatory costs.
- Emerging Markets Focus Areas: In order to grasp technological interconnections, emerging market economies (EMEs) must develop regulatory authority, scope of regulation, and fill data gaps.
@theend
- Regulating virtual digital assets requires a delicate balance of innovation, consumer protection, and financial stability.
- worldwide Coordination: The disparities in approaches among jurisdictions underscore the importance of worldwide coordination and harmonisation in VDA policies.
- India’s Proactive Approach: India’s recent moves show that it is taking a proactive approach to conforming with global norms while also addressing local concerns.
- Future Obstacles: As the virtual asset landscape evolves, regulators around the world will face new problems in modifying existing frameworks to guarantee effective monitoring while not inhibiting innovation.
Source: https://www.livemint.com/opinion/first-person/virtual-digital-assets-lessons-from-global-trends-in-regulation-11693994856964.html