Reserve Bank of India slams banks after they stop services for crypto users

The Reserve Bank of India, the country’s central bank, released a new directive today after local banks ceased crypto services for users citing a directive from 2018, an official filing shows.

“It has come to our attention through media reports that certain banks/ regulated entities have cautioned their customers against dealing in virtual currencies by making a reference to the RBI circular dated April 06, 2018,” the bank stated.

Customer Due Diligence for transactions in Virtual Currencies (VC)https://t.co/iAUAx8KpRh

— ReserveBankOfIndia (@RBI) May 31, 2021

Not in effect

It added that such references to the above circular by banks/ regulated entities were “not in order” after the circular was set aside by the Hon’ble Supreme Court on March 04, 2020.

India has a rather shaky relationship with cryptocurrencies, primarily due to the way its financial structure is governed. The country’s Financial ministry, which oversees all financial innovation in the country, is suggestively more crypto-friendly than the RBI, which controls how the rupee is issued and circulated and views cryptocurrencies as a ‘threat.’

Historic Moment for crypto community in India🇮🇳.

Moment of joy for all of us.

RBI clearly says that 2018 circular of banking ban against dealing in Crypto assets was set aside by the Supreme Court on 4th March 2020. pic.twitter.com/TgRISbIp7V

— Crypto Kanoon (@cryptokanoon) May 31, 2021

But this time, even the RBI stepped in to clarify its stance. Banks like HDFC, SBI, and others recently started sending out curricula to crypto-linked customers in the past few months, stating they would not support transactions to and from crypto businesses like exchanges or wallets.

The banks cited the 2018 dictum for their decision, adding that such accounts face the risk of termination should they continue to engage with crypto services.

KYC norms for crypto users to continue

In its directive today, the RBI said the onus of Know-Your-Customer (KYC) policies and other Anti-Money Laundering safeguards fell on the banks themselves. 

“Banks, as well as other entities addressed above, may, however, continue to carry out customer due diligence processes in line with regulations governing standards for KYC, AML, Combating of Financing of Terrorism (CFT) and obligations of regulated entities under Prevention of Money Laundering Act, (PMLA),” wrote Shrimohan Yadav, Chief General Manager of the RBI in the notice.

Meanwhile, local entrepreneurs said the move was a step in the right direction.

“This is a very positive development for the whole industry,” said Nischal Shetty, Founder and Chief Executive Officer of crypto exchange WazirX, in a statement to local outlet the Economic Times.

He added, “There was a lot of confusion among banks whether they can service their clients in the industry. This notification makes it clear.” Indian crypto users are arguably relieved.

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