India Tightens Crypto KYC Standards: New Rules Transform User Verification

India’s financial regulators have introduced sweeping changes to how crypto platforms verify customers. The Financial Intelligence Unit (FIU) rolled out reinforced Know Your Customer (KYC) standards effective January 8, marking a significant shift in how the country’s digital asset industry operates. These stricter verification requirements will reshape the onboarding experience for anyone trading crypto in India and force exchanges to overhaul their compliance infrastructure.

The new crypto KYC framework introduces multi-layered identity verification that goes far beyond traditional document checks. Account holders must now undergo live selfie verification with movement detection technology—a measure designed to prevent identity fraud and synthetic account creation. During onboarding, users will need to furnish government-issued identification such as passports, Aadhaar cards, or voter IDs. Mobile numbers and email addresses must complete one-time password verification to confirm genuine ownership.

Tightened Bank Account Verification and Data Storage Requirements

Exchanges conducting crypto transactions in India must now execute penny-drop tests to confirm actual bank account ownership. This involves depositing a small amount into a user’s account to verify they control the corresponding bank connection. Beyond account verification, platforms must capture and maintain comprehensive metadata—including IP addresses, device identifiers, geolocation data, and precise timestamps recorded at the moment of account creation.

The compliance burden extends to long-term record retention. Crypto exchanges operating in India must preserve all verification records for a minimum of five years, with extended retention periods triggered during regulatory investigations. This documentation requirement reflects the FIU’s commitment to creating a complete audit trail for every KYC transaction in the crypto space.

Risk-Tiered KYC Updates and Enhanced Monitoring

Not all crypto traders face identical verification frequency under the new regime. High-risk account holders—including politically exposed persons, individuals from FATF-blacklisted jurisdictions, and representatives of non-profit organizations—must complete KYC verification updates every six months. Standard-risk users need annual updates, creating a dynamic compliance cycle that exchanges must systematically manage.

The FIU has explicitly prohibited transactions involving privacy-focused cryptocurrencies, mixer services, and tumbler protocols. These tools, designed to obscure transaction ownership and origins, are treated as red flags in the new risk-assessment framework. Initial Coin Offerings and Initial Token Offerings also face regulatory discouragement, reflecting broader concerns about unverified asset launches in the crypto sector.

Why India Accelerated Crypto Regulation

The regulatory tightening follows India’s 2023 decision to classify Virtual Digital Asset service providers under the Prevention of Money Laundering Act. This designation transformed crypto platforms from an emerging sector into a formally regulated industry, requiring all exchanges seeking to serve Indian customers to complete official registration and KYC compliance documentation.

Security incidents at platforms like WazirX and CoinDCX exposed significant gaps in previous verification and monitoring practices. These breaches demonstrated that basic document-collection approaches left the ecosystem vulnerable to fraud and regulatory evasion. By establishing uniform standards, regulators aim to reduce hacks, minimize illegal transaction flows, and strengthen customer data protection across the entire crypto trading ecosystem.

Exchanges must now deploy software capable of identifying and blocking transactions tied to anonymity-enhancing services. Mandatory PAN (Permanent Account Number) verification must occur before any crypto-related activity takes place. Technical identifiers—including wallet addresses and transaction hashes—are systematically collected to support risk monitoring, fraud detection, and regulatory compliance verification.

The updated KYC and crypto compliance framework represents India’s most comprehensive effort to date to align digital asset regulation with global anti-money laundering standards while protecting the financial system from illicit activity.