crypto exchanges: Crypto bill to give power to Sebi, RBI, taxman to scrutinise KYC data of exchanges – The Economic Times

Clipped from: https://economictimes.indiatimes.com/tech/technology/crypto-bill-to-give-power-to-sebi-rbi-taxman-to-scrutinise-kyc-data-of-exchanges/articleshow/88130343.cmsSynopsis

Government could also put in place a uniform KYC process for exchanges

The new Cryptocurrency bill is set to empower regulators and government agencies including the Securities and Exchange Board of India (Sebi), Reserve Bank of India (RBI) and the tax department to scrutinise Know Your Customer (KYC) data of investors that crypto exchanges have collected from clients.

According to two people aware of the development, the new regulations would mandate cryptocurrency exchanges to share their KYC data, which mainly includes details of their investors, with the government.

The KYC data could help regulators zero in on transactions across platforms, check that against bank deposits and even calculate or scrutinise gains and other discrepancies.

The new cryptocurrency framework will also put in place a uniform KYC process that every exchange must adhere to, they said. As things stand today, different cryptocurrency exchanges have different KYC processes.

“KYC data will become the key for any scrutiny by any regulator,” one of the persons aware of the development said. “And unless this is spelled out in the law and made mandatory, the cryptocurrency operators (exchanges) need not share it.”

Many in the government fear that several cryptocurrency investors could be operating multiple accounts not just across platforms but even with multiple banks and NBFCs where their money is eventually deposited.

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Insiders say because most banks have stayed away from providing services to exchanges, cryptocurrency transactions are structured in a different manner. And the regulators may find it hard to scrutinise this data.
“So, if you look at bank accounts, you will just see a transaction or a deposit from another bank, and not really a deposit from a cryptocurrency exchange. So, for instance, the income tax department wishes to scrutinise crypto transactions, the bank or NBFC may not really know how to segregate those transactions,” said another person aware of the development.

After the crypto framework is in place, regulators may find it tough to monitor the complex web of transactions and figure out the stream of money or even calculate gains or losses on those without KYC data shared by exchanges, insiders said.

The impetus is also on uniform KYC. “There are about 20-25 exchanges, and all of them have different KYC processes. This has to be brought in line with serious asset classes,” one of the persons quoted earlier, said.
While some exchanges think monitoring of KYC will help them, others are taking this with a pinch of salt.

“We will be more than willing to comply with the demands of our esteemed regulators for the creation of a healthy regulatory framework for the booming crypto sector in India,” Shivam Thakral, CEO, BuyUcoin, a cryptocurrency exchange, said.

“Based on the requests that come in, we will evaluate to see if it is in sync with the guidelines shared by our regulators and comply accordingly,” said Shashi Jha, head of legal and compliance, WazirX, another exchange.
Insiders told ET that the so-called KYC data maintained by several cryptocurrency exchanges is quite “patchy.”

Under the new cryptocurrency framework, the government could ask Sebi to regulate crypocurrencies in India. New regulations may treat cryptocurrencies as an asset/commodity for all purposes, including taxation, ET first reported on Sept 3.

On May 17 top exchanges told ET that they had approached the government and sought that Sebi, and not RBI, should regulate them. The government could be asking Sebi to take over the responsibility to regulate cryptocurrencies in India, sources said.

The new crypto framework would specifically ask exchanges to share their KYC and other transaction data with all regulators, including Sebi.

This also comes at a time when the government is looking to amend the income tax law, ET first wrote on December 4. Government looking to add “cryptocurrency” to the Income Tax act in the upcoming budget, which will result in mandatory disclosures by taxpayers of their cryptocurrency investments in India and abroad.

The government’s plan to amend section 26A of the income tax act is separate from the cryptocurrency framework that’s being discussed in the winter session.

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