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Even as the Reserve Bank of India (RBI) has expressed concerns over the usage of cryptocurrency as a medium of exchange, the apex bank on Monday clarified that banks and other regulated entities can no longer cite its old circular on cryptocurrencies for not offering such products to customers. However, it stated that the lenders must adhere to local rules, which are quite exclusionary.
What does the old RBI circular on cryptocurrency say?
In its circular dated April 6, 2018, the central bank had prevented banks from dealing in cryptocurrencies or offering any service to customers on them. But the move was challenged in the Supreme Court, which had set aside the rules on 4 March 2020.
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What’s the current observation?
The RBI circular, called Customer Due Diligence for transactions in Virtual Currencies (VC), has been issued after major Indian banks have given warnings to customers against using their services to trade in cryptocurrencies.
The RBI said, banks continue to cite the 2018 circular by the RBI to justify why they are not offering any services on cryptocurrencies.
“In view of the order of the Hon’ble Supreme Court, the circular is no longer valid from the date of the Supreme Court judgment, and therefore cannot be cited or quoted from,” the RBI said in a clarification on its website.
The apex bank also stressed that banks need to carry out customer due to 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.”
What does it mean?
It means that bank can offer services to customers, but it has to undergo several checks and balances, including ensuring the funds are not used for money laundering or financing terrorism. It is because cryptocurrencies are not supported by central banks and are decentralized by nature, making it difficult to trace their end-use.
RBI governor Shaktikanta Das said in March that the central bank had “major concerns” about cryptocurrencies that were communicated to the government.
“Central bank digital currency is one thing. The cryptocurrencies which are traded in the market are something else. Both RBI and government are committed to financial stability. We have flagged certain concerns around these cryptocurrencies which are being traded in the market. We have flagged certain major concerns to the government,” Das had said.
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