The Indian Finance Ministry has announced that organizations dealing in virtual digital assets (VDAs) will now be considered "reporting companies" under the Prevention of Money Laundering Act (PMLA), which means users of crypto exchanges and intermediaries dealing with VDAs will have to undergo KYC (know your customer) procedures.

An issuer engaging in activities such as offering and selling a VDA, exchanging it for fiat currency, transferring it, or handling it securely is considered a reporting entity under the PMLA. Reporting entities are required to maintain KYC records, including documents proving the identities of their clients and beneficial owners, as well as account records and correspondence related to clients. All intermediaries must keep records of every transaction for at least five years, according to Rajat Mohan, senior partner of AMRG & Associates.

The move indicates that the Indian government is working on a policy framework for the crypto industry, and we may see more such regulations for the sector in the near future. Currently, reporting entities under the PMLA include casinos, businesses involved in the real estate and jewelry industries, and banks and other financial organizations.

The inclusion of virtual digital assets trading organizations as "reporting companies" under the PMLA is part of the government's efforts to regulate the cryptocurrency sector in India. In recent years, the government has expressed concerns over the potential risks associated with cryptocurrencies, such as money laundering, terrorist financing, and fraud.

The new KYC requirements for VDA intermediaries are expected to bring more transparency to the sector and make it harder for criminals to use cryptocurrencies for illicit activities. It will also help authorities to track and investigate suspicious transactions and prevent money laundering.

However, the new regulations may also pose some challenges for small and medium-sized cryptocurrency exchanges and startups that may find it difficult to comply with the complex KYC requirements. They may also face increased compliance costs, which could potentially limit their growth and competitiveness in the market.

Overall, the move towards regulating the cryptocurrency sector in India is a positive step towards creating a safer and more transparent environment for the use of virtual digital assets. With more regulations expected to come in the future, it is hoped that the Indian crypto industry will attract more organized players and investment, leading to further growth and development.