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India's Central Bank RBI tells banks cannot stop investors from trading cryptocurrencies

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Shivangi Mujumdar Follow

INDIA

Jun, 01 2021

Jun, 01 2021

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RBI released a circular about Indian banks warning customers against using their services for crypto trading. In the relaxation for the crypto community, the Reserve Bank of India issued an explanation on 31-May-2021. It specifies that the commercial banks cannot quote its now-invalid April 2018 crypto. The banking ban to disagree to provide the services to customers involved in digital assets dealings. 

 

The RBI has stated that this came to their attention through media reports that some bank entities have cautioned their customers against trade in virtual currencies. Few references to the circular by banks/regulated entities are not in order as this was set aside by the Hon’ble Supreme Court on March 4, 2020. 

 

Statement by RBI- 

 

The RBI’s new statement specifies that it makes clear that the central bank hasn’t asked lenders to end providing services to exchanges. It doesn’t ask banks to reinstate services to crypto exchanges and says lenders should certify necessary compliance. 

 

These prohibitions have come at a time when India's cryptocurrency exchanges witnessed huge power, with investors drawn by Bitcoin's bull gathering in 2020 and initial 2021. 

 

What banks says in regards of the circular- 

 

Banks had told ET that in the lack of a clear order from the RBI, they would stick with the prohibitive stand on cryptocurrency. They had quoted a lack of wave by the RBI of the top court order as the motive for cutting ties with crypto exchanges. 

 

It is not clear whether this would vary after RBI's latest statement. The central bank has, in the meantime, asked banks to remain to carry out the due diligence procedure set under existing regulations. 

 

RBI practice- 

 

On the other hand, the RBI asked banks and other regulated entities to remain to carry out customer due to diligence processes in line. This is with regulations governing standards for Anti-Money Laundering, Know Your Customer, Combating of Financing of Terrorism and obligations of regulated entities. With regards to the Prevention of Money Laundering Act in addition to safeguarding compliance with relevant provisions under the Foreign Exchange Management Act for overseas remittances. 


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Shivangi Mujumdar

CBW - External Analyst

INDIA

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