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India’s Financial Intelligence Unit has mandated that cryptocurrency exchanges verify users through live selfies with blinking detection and collect precise geolocation data for each transaction, marking one of the world’s strictest identity verification regimes for digital assets.
The Jan. 8 directive also bans initial coin offerings and requires six-month reviews of high-risk users, escalating regulatory pressure on platforms operating in a market where crypto remains legal to trade but not to spend.
At the core of the updated India crypto rules are significantly expanded know-your-customer (KYC) requirements for users of cryptocurrency exchanges. Under the new guidelines issued by the FIU, platforms must verify customers through a live selfie that includes blinking to confirm liveness and authenticity.
Exchanges are also required to log precise geographical coordinates, along with the date, time, and IP address associated with each verification attempt.
Beyond the mandatory Permanent Account Number (PAN), exchanges must now collect additional government-issued identification documents.
These include a passport, driver’s license, Aadhaar card, or voter ID, as well as verified mobile phone numbers and email addresses confirmed through one-time passwords. Together, these measures mark one of the most comprehensive identity verification regimes under India crypto rules to date.
The FIU’s directive reflects concerns that gaps in identity checks could be exploited for illicit financial flows.
According to the guidelines, enhanced data collection and verification are intended to make it harder for bad actors to anonymously move funds through crypto platforms operating within India’s jurisdiction.
The revised India crypto rules also establish stricter scrutiny for users deemed high risk. Exchanges are now required to authenticate users’ bank ownership through a “penny-drop” process, involving a small, refundable charge of one rupee to confirm account details. For certain categories of users, the oversight goes much further.
High-risk clients—including those linked to tax havens, jurisdictions flagged by the Financial Action Task Force (FATF), politically exposed persons, or non-profit organizations—must undergo enhanced due diligence checks every six months.
This ongoing review obligation increases compliance costs for exchanges but aligns India crypto rules more closely with international anti-money laundering standards.
The FIU has made clear that exchanges are responsible for monitoring transactions, identifying suspicious patterns, and reporting them promptly. All platforms must retain user data and transaction records for at least five years, creating a longer audit trail for investigators.
Another major pillar of the updated India crypto rules is the explicit prohibition on initial coin offerings (ICOs) and similar initial token offerings (ITOs). These fundraising mechanisms, often compared to mini-initial public offerings, are now barred from being supported by exchanges operating in India.
Platforms are also prohibited from using tools such as tumblers or mixers that obscure transaction trails and make crypto transfers difficult to trace.
The FIU justified this restriction by citing elevated financial crime risks. According to the guidelines, ICOs and ITOs lack a “justified economic rationale” and pose “heightened and complex” risks of money laundering and terrorist financing, — Financial Intelligence Unit, India.
This assessment underscores why India crypto rules take a more restrictive view of certain crypto market activities compared with some other jurisdictions.
All exchanges must register with the FIU to operate legally and are obligated to report suspicious transactions. Failure to comply could expose platforms to enforcement actions, reinforcing the seriousness with which regulators are approaching India crypto rules enforcement.
The latest measures fit within India’s long-standing cautious approach to cryptocurrencies. Under the Income Tax Act, 1961, digital assets are classified as virtual digital assets (VDAs).
Indian citizens are allowed to buy and sell VDAs through FIU-registered exchanges, but cryptocurrencies cannot be used as legal tender or as a means of payment for goods and services.
By tightening compliance obligations rather than imposing an outright ban, policymakers appear intent on containing risks while allowing regulated participation in crypto markets.
The updated India crypto rules signal that authorities are prioritizing transparency, traceability, and alignment with global anti-money laundering norms over rapid industry expansion.
Press Trust of India reported that the FIU’s measures are specifically designed to curb the misuse of crypto channels for illicit purposes while maintaining oversight of a growing sector.
“The objective is to prevent money laundering and terror financing,” Press Trust of India, citing FIU guidelines.
As exchanges adapt to these requirements, the impact of India crypto rules will likely be felt across onboarding processes, compliance operations, and user experience.
For regulators, the changes represent a step toward tighter control of digital finance. For the industry, they underscore that participation in India’s crypto market will come with some of the world’s most stringent regulatory expectations.
