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RBI rebukes Indian banks for citing its 2018 circular for denying crypto trading services

In what seems like a surprising yet positive turn of events for crypto traders in the subcontinent, the Reserve Bank of India (RBI) has released a circular today. The central bank has highlighted the fact that several media reports are suggesting that banks are cautioning the Indian users against dealing in virtual currencies. However, the RBI circular that banks are citing was released on April 6th, 2018, and is no longer valid as SC lifted the bank on March 4th, 2020.

What else did RBI say?

RBI added that the Indian banks shouldn’t cite the 2018 circular since Supreme Court judgment has already set it aside. However, it did add that banks / regulated financial entities can choose to do customer due diligence as per the KYC (Know Your Customer), AML (Anti-Money Laundering), CFT (Combating of Financing of Terrorism). These rules need to be followed according to the guidelines of PMLA (Prevention of Money Laundering Act) and FEMA (Foreign Exchange Management Act).

What does it mean?

While the one-page circular is low on details, it’s surely huge news for the industry. It clearly refers to the fact that the Indian banks can’t stop users from doing crypto trading by citing an RBI circular that’s no longer valid.

Will Indian banks allow crypto trading, again?

Here’s a tricky thing, though, if you try to understand the RBI circular. It says that the banks will need to do the due diligence. But the way crypto works, as a decentralized platform, it isn’t easy to figure out the actual use of the transaction by the end-user. Hence, while it’s a piece of positive news on the surface, things may not change in reality. A senior banker told Business Standard that the ruling

“almost maintains the status quo, unless some cryptocurrency exchange declares that they take the responsibility of checking the background of the end use, which may not be possible.”

What’s the crypto ecosystem in India saying?

The ecosystem is celebrating the RBI circular. Nischal Shetty, Founder and CEO of WazirX has shared a tweet

CoinDCX’s Co-founder and CEO Sumit Gupta has also pointed out that “banks cannot stop people from investing in crypto.

Finishing thoughts

it’s difficult to understand the government’s position regarding crypto. And the latest RBI circular continues to add to the confusion. It surely means that banks can’t stop people from investing or trading cryptocurrencies, but also puts the onus on them at the end to decide whether the user complies with all the different laws.

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