In a significant move, India has implemented strict measures to ban foreign cryptocurrency exchanges from operating within its borders, citing concerns related to money laundering and non-compliance with anti-money laundering laws.
The ban, which took effect on January 12, 2024, involves blocking access to the websites of several prominent global crypto platforms, including Binance, KuCoin, and OKX. Here are the key developments in this major regulatory change:
IP blocks prevent access to foreign crypto platforms
The Ministry of Electronics and Information Technology in India initiated an IP block that prevents Indian citizens from accessing the URLs of foreign cryptocurrency platforms. However, despite these restrictions, as per a CryptoSlate investigation, some users could still access the websites of Binance, OKX, and KuCoin via Google Chrome, albeit without using a virtual private network (VPN).
The Binance website was also accessible through Safari and Mozilla Firefox browsers without a VPN, although OKX and KuCoin websites remained inaccessible.
On January 10, 2024, the Ministry of Electronics and Information Technology requested Apple to restrict Indian users’ access to foreign cryptocurrency exchange applications. As of the time of writing, iOS and Android app stores have enforced restrictions preventing Indians from downloading foreign crypto exchange applications.
Concerns raised by Financial Intelligence Unit (FIU)
The Finance Ministry’s Financial Intelligence Unit (FIU) raised concerns that certain international exchanges may have been involved in money laundering. This warning from the FIU came shortly after it issued show-cause notices to nine foreign exchanges operating in India, which included Binance, KuCoin, Huobi, OKX, Kraken, Gate.io, MEXC Global, Bitfinex, and Bittrex.
These show-cause notices alleged that these exchanges operated illegally in India and did not comply with anti-money laundering laws. A show-cause notice is a formal document that accuses of wrongdoing and requires companies to provide an explanation for their actions within a specified timeframe. In this case, the exchanges were given two weeks to respond, which has expired.
Impact on existing users and withdrawals
The new restrictions will prevent Indians from downloading applications of foreign exchanges, but those who already have these applications installed can still access them. However, withdrawing cryptocurrencies may pose challenges, as UPI (Unified Payments Interface) withdrawals will no longer be available.
Binance’s Response and Commitment to Compliance
In an email to its users, Binance, one of the prominent foreign exchanges affected by these measures, stated, “We are working hard to engage in constructive policy-making that seeks to benefit every user and all market participants. All user funds are safe.” The exchange also reiterated its commitment to adhering to local regulations and laws.
Impact on the Indian crypto market
The Indian cryptocurrency market has witnessed a significant shift in recent times. After implementing a 1% tax deducted at source in 2022, many Indian investors sought refuge in overseas platforms to avoid these taxes.
However, the recent clampdown on foreign exchanges is reshaping the landscape. Indian investors are now flocking to local platforms, which have seen user and deposit inflow surges.
For instance, WazirX, a local platform, experienced a 250% increase in deposit inflows in the four days following the issuance of the show-cause notice compared to the four days before it. CoinDCX, a rival of WazirX, has also seen an uptick in users since December 28. Mudrex, a Y Combinator-backed local exchange, gained 30,000 new users in the same period.