India tightens crypto regulations: Strengthening KYC to curb money laundering and terrorist financing risks
India is further strengthening its regulation of the cryptocurrency industry. According to disclosures from the Indian Press Trust, the Indian Financial Intelligence Unit (FIU) issued updated guidelines on January 8, 2026, requiring all cryptocurrency platforms operating locally to implement stricter identity verification and compliance checks, with a focus on combating money laundering and terrorist financing activities.
The new regulations mandate platforms to introduce real-time selfie verification during user registration. Users must demonstrate their real identity through dynamic actions such as blinking, while the system must simultaneously record geographic location, date, time, and IP address to prevent identity forgery and cross-border misuse. In addition to the Permanent Account Number (PAN), platforms are required to collect official documents such as passports, driver’s licenses, Aadhaar cards, or voter IDs, and verify phone numbers and email addresses via one-time passwords.
On the financial side, bank accounts linked to users will be verified through a “small amount verification” method. The platform will charge a refundable amount of 1 rupee to complete the verification. For high-risk accounts—such as those associated with tax havens, jurisdictions under the Financial Action Task Force (FATF), or non-profit organizations—users will undergo enhanced due diligence at least every six months.
The regulatory documents also explicitly prohibit platforms from supporting initial coin offerings (ICOs) and similar token sales, and require the cessation of anonymous tools such as mixers or tumblers to ensure traceability of transaction paths. All crypto platforms must register with the FIU, continuously report suspicious transactions, and retain user and transaction data for no less than five years.
Indian regulators point out that ICOs and related token issuances lack clear economic fundamentals and are structurally more susceptible to being used for complex illegal fund flows, thus being classified as high-risk areas. Currently, India still defines crypto assets as Virtual Digital Assets (VDA), allowing trading on compliant platforms but explicitly prohibiting their use as legal tender for settling goods or services.
This regulatory upgrade sends a clear signal: India aims to reduce the risk of financial crimes through a high-intensity compliance framework without outright banning cryptocurrencies. For the industry, compliance costs will significantly increase, while clearer regulatory boundaries will help long-term participants improve market transparency and trust foundations.