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Indian Government Notifies Changes in Registration Process for VDA Entities
The Financial Intelligence Unit India (FIU IND) has introduced additional requirements for Virtual Digital Asset Service Providers (VDA SPs) seeking registration under the Prevention of Money Laundering Act, 2002 (PMLA). These changes, effective 20 January 2025, strengthen the regulatory framework governing crypto exchanges and other virtual digital asset businesses operating in India. The objective of these changes is to ensure stronger anti-money laundering (AML) and counter-terrorist financing (CFT) compliance within the rapidly growing digital asset ecosystem.
What is FIU IND?
The Financial Intelligence Unit India (FIU IND) is an independent agency under the Ministry of Finance responsible for monitoring, collecting, and analyzing financial transactions; detecting suspicious activity linked to money laundering and terrorist financing; sharing intelligence with enforcement agencies and international FIUs; and ensuring compliance with anti‑money laundering (AML) and counter‑terror financing (CFT) requirements. It acts as India’s central hub for financial crime detection.
Under the Prevention of Money Laundering Act, 2002, entities dealing in virtual digital assets are classified as “reporting entities." This means that virtual digital asset platforms must register with the Financial Intelligence Unit India, maintain AML and KYC compliance systems, report suspicious financial transactions, and maintain records of transactions and customer identities. Failure to comply may result in penalties, restrictions on operations, or regulatory action.
Key Changes Introduced in the FIU IND Registration Process
- “Fit and Proper” Certificate Requirement: If a Virtual Digital Asset service provider applying for registration has entered into business relationships or agreements with another FIU registered Virtual Digital Asset entity (such as broker arrangements or B2B partnerships), it must now Obtain a “Fit and Proper Certificate”, The certificate must be issued by the existing registered virtual digital asset service provider. The certificate must be submitted as part of the registration application. This requirement ensures that Virtual Digital Asset entities dealing with each other maintain credible compliance standards and Businesses collaborate only with trusted and compliant partners
- Mandatory AML/CFT Compliance Questionnaire : Applicants must now submit a duly filled questionnaire covering various aspects of their AML and CFT compliance framework. Although the FIU IND notification does not specify the exact format, the questionnaire is expected to include information such as Customer due diligence (KYC procedures), Transaction monitoring mechanisms, Suspicious Transaction Reporting (STR) systems, and Risk assessment procedures along with AML compliance policies and internal controls
- Objective of Changes Introduced in the Registration Process: The questionnaire allows the regulator to evaluate whether the applicant has adequate AML safeguards before granting approval.
- "In-Principle Approval” for Registration Completion: The FIU IND has clarified that registration will be considered complete only when the Director of FIU IND grants "in-principle approval.” This means simply submitting documents on the FIU portal does not complete registration. The regulator must review and approve the application; only after approval will the entity be treated as fully registered.
- Practical implication of changes introduced in the registration process: Virtual digital asset entities must ensure complete documentation, proper AML compliance systems, and accurate disclosures before applying for registration.
- Purpose of the New Compliance Requirements: The updated requirements aim to strengthen regulatory oversight of the virtual digital asset ecosystem by preventing misuse of digital assets for money laundering, enhancing transparency in crypto transactions, ensuring robust AML frameworks before market entry, and monitoring business relationships between crypto entities. These steps align India’s regulatory framework with global FATF recommendations on virtual assets.
