Crypto Safety First: India’s New AML/CFT Framework for Virtual Digital Assets (VDAs)
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Ministry of Finance | Enforcement Directorate (ED)
The updated Anti-Money Laundering (AML) & Countering the Financing of Terrorism (CFT) Guidelines issued by Financial Intelligence Unit – India (FIU-IND) establish a rigorous regulatory perimeter for Virtual Digital Asset Service Providers (VDA SPs) operating in India. Under the Prevention of Money Laundering Act (PMLA), all VDA SPs—including those handling Non-Fungible Tokens (NFTs) and tokens defined under Section 2(47A) of the Income-tax Act—must register as Reporting Entities (REs). This framework excludes the RBI-issued Digital Rupee but covers all other VDA activities to promote a risk-based approach to financial integrity.
The guidelines institutionalize transparency through several mandatory pillars:
Registration & Governance: VDA SPs must register via the FINGate portal, providing incorporation docs, GST/IT returns, and cybersecurity audits. A Designated Director (DD) and Principal Officer (PO) must be appointed to oversee compliance and report suspicious activities independently.
Robust Client Due Diligence (CDD): For individuals, REs must collect PAN, identity docs, and use liveness detection with geo-location. Legal entities require beneficial ownership verification, and high-risk clients (like PEPs or NGOs) trigger Enhanced Due Diligence (EDD).
The Travel Rule & Monitoring: For all transfers, REs must immediately and securely transmit accurate originator and beneficiary information. Ongoing monitoring using AI/ML tools is mandated to flag red indicators and generate Suspicious Transaction Reports (STRs).
Anonymity Prohibitions: Transactions involving Anonymity Enhancing Crypto Tokens (AECs), “mixers,” or “tumblers” are strictly prohibited as they are deemed unacceptably high risk. REs must also apply EDD to transactions involving unhosted wallets.
What is the ‘FIU-IND’ and its role in digital asset regulation? The Financial Intelligence Unit – India (FIU-IND) is the central national agency responsible for receiving, analyzing, and disseminating information relating to suspect financial transactions to law enforcement agencies. It acts as the primary supervisor for VDA SPs, requiring them to demonstrate their AML/CFT systems during mandatory in-person meetings before registration is finalized.
What qualifies an entity as a ‘Virtual Digital Asset Service Provider’ (VDA SP)? A VDA SP is any entity that facilitates the exchange, transfer, or safekeeping of virtual digital assets as defined under Indian law. This includes crypto exchanges and NFT platforms, all of which are now required to maintain client and transaction records for at least five years to enable the reconstruction of transactions for law enforcement.
What is the ‘Travel Rule’ in Virtual Digital Assets? It is a global standard that requires financial institutions and VDA SPs to share specific information about the senders and recipients of digital asset transfers. In the Indian context, it means that when you move crypto from one exchange to another, the sending exchange must “travel” your name, account number, and address to the receiving exchange. This eliminates the “anonymity gap” that criminals often exploit to move funds between different platforms.
Policy Relevance
These guidelines transition the VDA sector into a supervised financial activity, aligning India with global Financial Action Task Force (FATF) standards.
National Security: By banning AECs and mixers, the state prevents the creation of a “dark financial system” used for terror financing or weapons of mass destruction.
Investor Protection: Mandatory registration and liveness detection significantly reduce the risk of “rug-pulls” and identity theft in the Indian crypto market.
Compliance Culture: The shift toward automated transaction monitoring and the “Travel Rule” ensures that Indian VDA SPs are interoperable with global regulated markets.
Follow the full news here: FIU-IND AML/CFT Guidelines 2026