India tightens KYC requirements for cryptocurrency user registration

India has taken management

The Financial Intelligence Unit of India (FIU-IND) has issued significantly stricter guidelines on Know Your Customer (KYC) and Anti-Money Laundering (AML) for cryptocurrency exchanges, effective immediately following the updates issued on January 8, 2026. These new regulations represent the most significant tightening of registration requirements since cryptocurrency platforms were classified as Virtual Digital Asset (VDA) service providers under the Anti-Money Laundering Act (PMLA) in March 2023.

The updated guidelines, aimed at combating money laundering, terrorist financing, fraud, and other illicit activities, require enhanced identity verification measures to close loopholes previously exploited through the uploading of underlying documents or static images.

Exchanges now have to implement multi-layered verification, including in-person biometrics, to ensure registrants are present in person and not using AI-generated deepfakes.

New regulations from 2026

The FIU now requires the following from all new users on registered (FIU-compliant) cryptocurrency exchanges:

• Live selfies feature life detection — Real-time photos taken during registration are verified using software that tracks blinks, head movements, or other dynamic actions to confirm physical presence and prevent spoofing with still images or deepfakes.

• Geolocation & Device Tracking — Required recording of latitude/longitude coordinates, IP address, timestamp, and device details at account creation. Any discrepancies between the provided address and geodata will trigger enhanced authentication.

• Many government-issued identification documents — In addition to the Permanent Resident Account Number (PAN) (required), users must submit a second photo identification document such as an Aadhaar, passport, driver's license, or voter card.

• Email & Phone Number Verification — Confirm with an OTP code for both email and phone number.

• Bank account verification — A "mini-test" method (refundable test transfer of ₹1) to link and verify a user's bank account.

• Regular KYC updates — High-risk customers need to be re-verified every 6 months; all others annually.

These measures apply to all VDA service providers registered with the FIU (exchanges, wallet providers, etc.) and aim to enhance traceability while maintaining India's stance that cryptocurrencies are not legal tender but are subject to taxation as virtual digital assets.

Why is the regulation required to be implemented immediately?

India's cryptocurrency market has grown rapidly despite regulatory ambiguity. Millions of individual users trade and hold digital assets, often through offshore platforms or loosely regulated domestic exchanges.

From a government perspective, this creates numerous risks such as capital outflow, tax evasion, the risk of fraud and deception, and loopholes in anti-money laundering enforcement.

Tightening KYC procedures is a way to reaffirm regulatory control without disrupting innovation, especially as India strives to align with global standards set by organizations such as the Financial Action Task Force (FATF).

Our point of view

India's latest tightening of KYC procedures is a clear signal: the government is increasing transparency and traceability without completely banning cryptocurrency activity. While transactions remain legal (and heavily taxed), the barriers to entry have increased dramatically—bringing India closer to global AML/CFT standards while addressing domestic concerns about illicit money flows and tax evasion.

For India's massive retail cryptocurrency community, this means more difficulty in the registration process but potentially greater security and legitimacy for compliant platforms. Foreign exchanges continue to face pressure to register with FIU-IND or risk being blocked.

Disclaimer: The information presented in this article is the author's personal opinion in the field of cryptocurrency. This is not financial or investment advice. All investment decisions should be based on careful consideration of your personal portfolio and risk tolerance. The views expressed in this article do not represent the official stance of the platform. We recommend that readers conduct their own research and consult with experts before making any investment decisions.

Compiled and analyzed by HCCVenture

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