enforce cybersecurity inspections as compulsory for cryptocurrency businesses in India
In a significant move towards regulating the cryptocurrency sector, the Indian government has announced mandatory cybersecurity audits for cryptocurrency exchanges, custodians, and intermediaries. This development comes as a response to the rising number of cryptocurrency crimes in the country, accounting for nearly 20-25% of all cybercrime cases.
The audits are being conducted by a security auditor under the Indian Computer Emergency Response Team (CERT-In), an organisation responsible for overseeing the country's cyberspace and functioning under the IT ministry. The audits focus on the protection of 'private keys' and their storage, crucial aspects in maintaining the security of cryptocurrency transactions.
The new requirement is tied to registration with the Financial Intelligence Unit (FIU), India's anti-money laundering agency. VDA firms, already covered under the Prevention of Money Laundering Act (PMLA), are expected to meet compliance standards similar to banks. The FIU retains the power to deny or cancel registrations if firms fail to meet anti-money laundering requirements.
Industry voices welcome this move as a positive step. Harshal Bhuta, a partner at CA firm P. R. Bhuta & Co, believes the audits are a response to recent crypto thefts. Purushottam Anand, Advocate and Founder of Crypto Legal, mentioned the FIU has replaced the 'Fit & Proper' certificate with a new accreditation called 'Partner Accreditation for Compliance & Trust' (PACT).
A survey conducted by Mudrex, a large Indian crypto investment platform, reveals that 93% of respondents support regulation. 56% want full investor-protection frameworks, 24% prefer lighter oversight, and 13% favor regulation limited to taxation. Currently, there are around 55 entities involved in crypto trading, custody, and related services in India.
The Indian Parliament's Standing Committee on Home Affairs recently released a report titled 'Cyber Crime - Ramifications, Protection and Prevention' highlighting the increasing exploitation of cryptocurrencies in financial frauds, money laundering, ransomware attacks, and human trafficking. The report suggests a segmented approach to crypto regulation, treating Bitcoin, stablecoins, and utility tokens differently based on their use.
As the cryptocurrency landscape continues to evolve, India is taking steps to ensure the safety and legitimacy of its digital assets. The mandatory cybersecurity audits are a significant stride towards this goal, aiming to protect users, businesses, and the integrity of the Indian financial system.
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