Reflecting on a Year of Regulatory Changes in the Crypto Landscape | THE YEAR GONE BY

THE YEAR GONE BY…. By Rohan Bhandari

A lot of my peers have been asking me recently how the past year has gone by, a lot of things have changed in the crypto landscape, and India finally released the first batch of guidelines for regulating cryptos.

Since I have been in the thick of all of this, and it has been a year since the guidelines came out, I think it’s the right time to talk about my experience.

And so it began….

As I recall, it was February 25, 2023, when late evening, I received a Slack from my policy colleague – saying, 

“We must be ready with AML compliance, something is cooking up in the ministry, and we should be ready by the end of the year.” 

With my past experiences in the fintech industry, I knew this would happen sooner or later, one-day crypto services will fall under the PMLA act. So for the past 10 months (since I joined CoinDCX), I have been dedicating my time & effort to building on AML-related products, processes & people to ensure we are ready when D-Day comes. 

Fast forward 10 days – March 7, 2023, we see that the Government of India has passed amendments to the PMLA Act and brought entities dealing in virtual digital assets under its ambit.

The First Visit as a Crypto Player… back to Jeevan Bharti Building (FIU Office)…

The Department of Revenue, Ministry of Finance, had scheduled its first meeting with the known crypto players (CoinSwitch, WazirX, Unocoin, CoinDCX, etc.) on March 10, 2023, to take us through the PMLA amendments and clear any doubts that we had.

(Side thought: Nostalgia sets in, the FIU office has been a constant office that I have visited over the past 16 years of my career, I have been visiting this place wearing the hat of a compliance officer from different entities – going from ICICI, Airtel, Freecharge, Axis and Paytm).

At the meeting, the Director of FIU released the first set of guidelines for the virtual digital assets providers and made it clear that entities in India providing virtual digital assets services must immediately register with FIU and comply with these guidelines- the reason being India is proposed to have its mutual evaluation done by FATF in November 2023, and we must ensure this sector is not designated as ‘non-compliant.’

For any further clarity on the operational side, the Director, FIU set up a working group amongst the crypto players and the designated FIU officials.

So, my name was recommended, and I became part of the first working group that FIU set up for operationalizing the VASP guidelines.

First Thing First…..

As it was clear from Day 1 that CoinDCX as an entity would comply with all regulations/laws that were released, we immediately cracked at taking the FIU registration. Thanks to our forward-thinking & compliance-first approach, we were the first entity in India to be granted FIU registration on March 16, 2023 (Just 8 days into the change in the PMLA Act)

The First Working Group of FIU…..

We commenced our working group meeting, March 17, 2023 onwards, with a common goal that we need to finalize ‘red flag indicators’ basis which suspicious transactions will be reported, the reporting formats, and lastly, how to operationally comply with the guidelines.

The marathon meetings went on daily up to the first week of May 2023, and we released our final document, which comprised the list of red flag indicators and the formats we need to report to FIU.

Parallelly….

At the CoinDCX office, we set up a core team comprising product, operations, technology, service, and compliance officers. The goal-to assess where we are on each requirement of the FIU Guidelines and work on a war footing basis to close any gaps. Again thanks to our proactive thinking, we had already started to build a lot of requirements that were on the FIU Guidelines, with specific guidelines out now, we just needed to tweak and could say we are ready.

The Next Big Task…..

Early June 2023, I received an intimation from FIU that we need to start work on preparing ourselves for the mutual evaluation assessment to be done by FATF in November 2023.

CoinDCX, yes, CoinDCX got selected for this task, all thanks to being proactive in working towards complying with the FIU requirements and taking a very active role in the working groups.

Our first meeting was set up at the end of June’2023 with the Director FIU and AS, TPRU. The goal – to showcase AML compliance commitment & levels to FATF and get the VASP industry to pass the FATF compliance tests.

Again, we started with marathon meetings with FIU and started to work towards preparing ourselves to face the FATF officials. This was indeed a very exciting point for me personally. My Designated Director and I had to face the FATF assessors since they also wanted to meet the private sector.

Our training continued over 3 months until mid-October 2023 when we had our first mock assessment chaired by the Director FIU and AS, TPRU.

We were able to showcase the compliance insights, passion & strength that we bring in, which led to the Director, FIU taking the call that we were ready to face the FATF officials.

Parallelly…

At CoinDCX, we were all green on the FIU guidelines, we got our assessment done from a third party (EY) as well, and all was good. All thanks to the passionate compliance officers I have in my team as well as the folks at technology, product, service & operations, who took it upon themselves to ensure we close any gaps that were identified and can call ourselves fully compliant with the FIU Guidelines.

Commitment !! Commitment !! Commitment !!

Due to the continuous commitment towards AML compliance, FIU nominated us in October’2023 to become a member of FPAC, a public-private association set up by FIU. We could finally now say – ‘we have arrived’ since we were now sitting & discussing AML with the big boys i.e. Banks.

To further strengthen our compliance commitment, we nominated ourselves to become members of ARIFAC in October 2023, a private-private association set up by FIU for sharing information amongst reporting entities.

The D Day…..

November 14, 2023… That was a day that I will always remember. This was the day when I faced the FATF assessors. My goal was to showcase our commitment to AML compliance, the work that we had done to comply with AML requirements, and our passion/knowledge on the subject.

Our meeting commenced at 5 pm and went well over an hour, the rapid-fire questions came from the FATF assessors, and we could answer them easily. Overall, thanks to our preparedness, and collaboration with FIU officials, we were able to sail through the assessment.

The Collaboration with FIU Continues…

Having led the working groups and being part of the FATF assessment, FIU nominated me as a speaker in the Asia Pacific Group Meeting held in Delhi in November 2023. This was again a career highlight for me personally, as I got the opportunity to speak & interact with regulators & intelligence officials from the Asia-Pacific region.

The Big Blow….

Over the next month, while I was working on optimizing our operational capabilities to manage AML, I always thought that the Indian crypto industry does not have a ‘level playing field’ with the foreign crypto players operating in India. My colleague at policy also echoed this and had been advocating in their discussion with the various governmental agencies they work with.

To my surprise, on December 28, 2023, FIU took cognizance of this fact and released a show-cause notice to nine foreign exchange players. This led to us again re-evaluating our process flows & reliance on foreign exchange players for our trading activity. Thanks to the risk management framework deployed at CoinDCX, we had already started working on de-risking ourselves from foreign exchange players. Now, with the ban coming in from FIU, we could move our operational reliance to FIU-compliant exchanges within no time.

Collaboration !! Collaboration !! Collaboration !!

Over the next months, we continued our collaboration with FIU and continued to showcase our commitment towards compliance at multiple events that FIU was hosting. The aim – ‘to change the perception of the crypto industry’ in front of LEAs and other reporting/financial entities. This led to us becoming the first crypto player to be a Cybersafe member – an FCORD, MHA initiative to manage frauds in the financial ecosystem.

While the work on ‘change of perception of the crypto industry’ has been started by CoinDCX, it will need help from all other crypto players operating in the Indian ecosystem. My urge to fellow compliance officers let’s work together to get this industry perception changed. Be part of this….

The Journey Continues…..

Sitting now in April 2024, it’s been a year since the guidelines came out, a lot has happened and I am very happy that I was part of all of this. One does not get this kind of opportunity frequently, and I am proud that I was part of this and was able to contribute to the best of my abilities.

A Vote of Thanks 

Lastly, all this would not have been possible without the passionate & forward-thinking folks at FIU. From the Director FIU to the Additional Director & Deputy Director, FIU, all played a key role in collaborating and working towards ensuring this sector becomes AML compliant. 

If the folks at the regulators are as passionate and open-minded as you, the combination can move mountains.

That’s all folks… My commitment to getting the crypto industry regulated continues, and I hope to see a designated regulator soon…