India has introduced tougher rules for cryptocurrency exchanges to curb illegal activities in the digital asset market. The Financial Intelligence Unit has rolled out stricter Anti Money Laundering and Know Your Customer norms that include mandatory live selfie verification and location tracking during user onboarding.
The updated guidelines, issued on January 8, classify crypto platforms as Virtual Digital Asset service providers. Under the new framework, exchanges can no longer rely only on simple document uploads.
Users will now be required to take a live selfie using software that confirms their physical presence through actions such as blinking or head movement. This step aims to prevent the use of static images or deepfake content.
Exchanges must also record the exact latitude and longitude, along with the date, time stamp and IP address, at the start of the account creation process.
Another key requirement is the penny drop method. This involves a small one rupee transaction to verify that the bank account is active and belongs to the user.
In addition to a Permanent Account Number, users must submit a second identity proof such as a passport, Aadhaar or voter identity card. Email and mobile numbers must be verified through a one time password.
The Financial Intelligence Unit, which functions under the Union Finance Ministry, has also taken a firm stand against tools that hide the trail of digital wealth. The guidelines aim to “strongly discourage” Initial Coin Offerings and Initial Token Offerings, citing their weak economic basis and high risk.
The regulator has stated that crypto exchanges must ensure the person submitting credentials is the same individual who is opening the account. “The authenticity of such access and personal presence shall be established by capturing a live photograph of the client and employing liveliness detection technology to verify the client’s physical presence,” the guidelines state.
High risk users must update their KYC details every six months, while others must do so annually. Enhanced checks will apply to individuals or entities linked to tax haven regions, those listed by global watchdogs, politically exposed persons and non profit organisations.
The rules also ban the facilitation of anonymity focused tokens, tumblers and mixers, which are used to hide the origin and ownership of funds.
Exchanges have been asked to store user identity, address and transaction records for at least five years or until any investigation is closed.
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