RBI Guides Banks On Due Diligence For Crypto Dealings Of Customers

Reserve Bank of India (RBI).

RBI Guides Banks On Due Diligence For Crypto Dealings Of Customers

The Reserve Bank of India has guided banks to continue doing due diligence on any crypto currency related dealings of their customers. The regulator has, however, said a 2018 circular from the RBI, that was set aside by the Supreme Court in March last year, cannot be cited as a reason to curb customer dealings in these tokens.

Over the weekend, BloombergQuint reported that HDFC Bank Ltd had cautioned its customers against possible restrictions if they are found to be dealing in cryptocurrencies. In a mailer sent out to customers, HDFC Bank had cited the 2018 circular from the RBI. Others like SBI Cards & Payment Services also sent out advisories but did not cite the 2018 circular.

The RBI, in its communication dated May 31, has clarified that the circular is no longer valid and asked banks to refrain from citing it as a reason for denying customers services because of their dealing with cryptocurrencies.

Such references to the above circular by banks/ regulated entities are not in order as this circular was set aside by the Hon’ble Supreme Court on March 04, 2020 in the matter of Writ Petition (Civil) No.528 of 2018 (Internet and Mobile Association of India v. Reserve Bank of India). As such, in view of the order of the Hon’ble Supreme Court, the circular is no longer valid from the date of the Supreme Court judgement, and therefore cannot be cited or quoted from.
RBI Circular, May 31, 2021

The banking regulator asked banks and other regulated entities to continue customer due diligence on the basis of other existing provisions, such as Know Your Customer, Anti-Money Laundering, Combating of Financing of Terrorism.

Further, it asked regulated financial institutions to also comply with obligations under Prevention of Money Laundering Act and provisions related to overseas remittances under the Foreign Exchange Management Act.

Even before some banks sent out mailers to their customers, lenders had started to withdraw services to cryptocurrencies businesses and transactions. Earlier this month, a number of large private banks such as ICICI Bank Ltd., HDFC Bank, IndusInd Bank Ltd. and Yes Bank Ltd. began pulling away from cryptocurrency exchanges, with some stopping account services to these businesses, BloombergQuint reported.

While cryptocurrencies are currently not illegal in India, the government has been mulling regulation pertaining to these tokens for some time. A Bill looking to ban cryptocurrencies had been listed in the budget session of parliament but was not introduced.

“This document is a ray of hope for the Indian crypto ecosystem. We really appreciate Reserve Bank of India’s clarification on this. We hope that this circular encourages banks to update their compliance teams and provide banking access to Indian crypto exchanges," said Nischal Shetty, chief executive of cryptocurrency exchange WazirX.

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