In relief for investors, RBI clarifies on 2018 cryptocurrency circular

Following the notices sent by leading banks to their customers, the Reserve bank of India (RBI) has come out with a clarification on Monday that the circular issued by the regulator in 2018 is no longer valid from the date of the Supreme Court judgement. It also mentioned that the RBI circular cannot be cited or quoted while warning customers about their crypto transactions.

After March 2020, this was the first time that banks sent written notices to their customers for cryptocurrency transactions last week. The banks were quoting the 2018 RBI circular pointing out that they have not yet received any official communication from RBI post that.

Welcoming the move, Nischal Shetty, CEO WazirX, said, “This document is a ray of hope for the Indian crypto ecosystem. We really appreciate the 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.”

The circular also states that “banks may, however, continue to carry out customer due diligence processes in line with regulations governing standards for Know Your Customer (KYC), Anti-Money Laundering (AML), Combating of Financing of Terrorism (CFT) and obligations of regulated entities under Prevention of Money Laundering Act, (PMLA), 2002 in addition to ensuring compliance with relevant provisions under Foreign Exchange Management Act (FEMA) for overseas remittances.”

Avinash Shekhar, Co-CEO at ZebPay said, “This is positive news for the entire crypto industry—businesses, stakeholders, and investors. Investing in crypto has always been 100% legal in India and the new RBI circular clearly confirms the right to do business with crypto firms. We have always enjoyed great relationships with our banking and payment gateway partners. Since we, at ZebPay, have always operated with strict KYC and AML policies, this is a welcome move to strengthen this relationship and make crypto investments accessible to more Indian investors.”

Over the weekend a large number of people took to social media complaining about notices received from HDFC Bank. The email was sent out to customers stating “To comply with the regulatory guidelines (RBI vide guidelines DBR.No.BP.BC.104 /08.13.102/2017-18 dated April 06, 2018), the Banks are advised to exercise due diligence by closely examining the transactions carried out in the account on an ongoing basis.”

“With the Bill pending in Parliament, the government has been trying to bring legislation. It itself is debated whether there should be a blanket ban or should some window be given, as currently there is no law prohibiting trading in cryptocurrencies. Till our regulatory framework comes out there will always be uncertainty around cryptocurrencies,” said Ajay Shaw, Partner at DSK Legal.

On April 6, 2018, RBI directed that all entities regulated by it shall not deal in virtual currencies or provide services for facilitating in dealing with or settling the cryptocurrencies. Hence, all the banks that were already providing such services were told to exit the relationship within three months with the cryptocurrency trading platforms.

On 4th March 2020, the Supreme Court set aside the RBI circular, which was issued on April 6, 2018, lifting curbs on cryptocurrency trading in India. After the Supreme Court order, several exchanges started offering crypto services again and in no time it emerged as a popular alternative investment avenue. But recently all banks stopped their API services to crypto exchange, as a result, exchanges have again been denied banking services. There was no notification from RBI after the Supreme Court ruling in 2020.