Author: Kiran Vivekananda, Chief Public Policy Officer
In June 2024, the Financial Action Task Force (FATF), the global standard-setter for anti-money laundering and counter-terrorist financing (AML/CFT), adopted India’s Mutual Evaluation Report (MER) during its plenary session in Singapore. The report, made public on September 19, 2024, reflects India’s significant progress in aligning with FATF’s AML/CFT standards.The last such review of India’s AML and terror financing regime was published in 2010.
India achieved a “regular follow-up” status in the MER, a distinction shared with only four other G20 nations, including Italy, France, and the UK. This rating signifies that India’s AML/CFT and counter-proliferation financing systems are robust and effective. Under this status, India will submit its progress report only in 2027. This milestone strengthens India’s financial system, boosting investor confidence and enhancing access to global financial markets.
What is a Mutual Evaluation?
A mutual evaluation is an in-depth review of a country’s compliance with FATF’s AML/CFT standards, conducted by peer countries. This process is complex and requires significant coordination. Notably, 13 of the G20 countries, including the USA, China, and Japan, are still under “enhanced follow-up,” while South Africa remains on FATF’s “grey list” (jurisdictions under increased monitoring).
FATF’s Recommendations and Virtual Assets
FATF’s 40 Recommendations provide a comprehensive framework for combating illicit financial flows. Recommendation 15 (R15), which was strengthened in 2018, focuses on virtual assets (VAs) and virtual asset service providers (VASPs). India’s MER highlights its progress in implementing R15.
Here are 5 key positive takeaways for the VDA industry from the report:
Strong Compliance & Risk Understanding: Indian VASPs demonstrated a solid understanding of AML/CFT obligations, integrating risk-based mitigation strategies like enhanced customer due diligence (CDD) and innovative identity verification methods.
Effective Role in High-Profile Cases: VASPs have been pivotal in helping law enforcement track suspicious transactions thereby contributing to national security.
Early Success in AML/CFT Controls: Despite being relatively new to the AML/CFT framework, Indian VASPs have shown an impressive commitment to preventive measures like collecting detailed customer information, implementing travel rule solutions, and integrating enhanced due diligence mechanisms.
Growing Confidence in AML/CFT Systems: India’s authorities and VASPs alike are being recognized for their growing sophisticated understanding of money laundering (ML) and terrorism financing (TF) risks, highlighting the industry’s readiness for the next phase of regulation.
Travel Rule Adoption: The adoption of the Travel Rule by 18 out of 28 VASPs reflects the sector’s dedication to global best practices, ensuring safe and compliant external transfers of virtual assets.
The success of India’s Mutual Evaluation Report (MER) reflects the Financial Intelligence Unit- India’s (FIU-IND) outstanding leadership and relentless dedication. Over two years, their steady guidance and patience were pivotal in strengthening India’s AML/CFT framework without hindering economic growth or innovation, especially in the virtual assets sector. The FIU-IND team’s extensive efforts, showcased through numerous coordinated meetings with stakeholders, played a key role in achieving this milestone. Their commitment has solidified India’s standing as a global leader in FATF compliance, laying a strong foundation for a secure and transparent digital asset ecosystem.
I believe it is an opportunity to further align our operations with global regulatory frameworks. By demonstrating strong compliance with FATF standards, CoinDCX and other VASPs in India can contribute to the long-term growth of the digital asset ecosystem. The FATF recognition not just enhances trust with our users but also opens doors to new partnerships and global collaborations. Our focus is to continuously improve our AML/CFT controls and work closely with regulators to ensure that the crypto sector remains both secure and innovative. This evaluation gives us a strong foundation to advance our vision of a safe, compliant, and transparent digital asset landscape in India and globally.
India’s progress in complying with FATF standards, particularly with respect to virtual assets, highlights the country’s strong regulatory framework and the VASP sector’s dedication to combating financial crimes. This strengthens India’s financial ecosystem and positions the country as a leader in implementing global AML/CFT best practices.