After the FIU-IND’s move to issue compliance notices and block URLs of nine offshore exchanges, the tides of cryptocurrency trading volumes may return home to domestic platforms. Marred by taxation, India’s trading activity had voyaged offshore earlier.

The Financial Intelligence Unit India (FIU IND) has issued compliance show cause notices to nine offshore Virtual Digital Assets Service Providers (VDA SPs) for alleged violation of the Prevention of Money Laundering Act 2002 (PMLA).

The unit has written to the IT Ministry to block the URLs of the said entities that are operating illegally without complying with the provisions of the PML Act in India. The nine offshore VDA service providers are Binance, KuCoin, Huobi, Kraken, Gate.io, Bittrex, Bitstamp, MEXCGlobal and Bitfinex.

Market dynamics

“Given this move, there may be a shift of trading traffic back to India, however, the regulators may also consider clarifying their stand on using alternate modes to operate or access such exchanges by Indian users,” said Henil Jain co-founder, Capdeck Advisors Private Ltd.

Post the introduction of 30 per cent tax along with a 1 per cent TDS, on VDAs, Indian bourses have lost a huge share of trading volumes to offshore bourses. A report by the think tank Esya Centre revealed about three to five million Indian users shifted to offshore platforms, resulting in $3.8 billion worth of trading volume shifting from domestic exchanges.

“With this move, FIU-registered and compliant exchanges will be preferred and Indian customers would prefer domestic exchanges. While movement of trading volumes is a function of time, this move underscores that the government has taken notice of offshore movement of trading volumes and is considering user safety,” said Sumit Gupta, CEO, CoinDCX. However, given India is a big market opportunity, with a sizable user base, the global exchanges may comply with the requirements, which is in turn good for customer safety, he added.

Conversely, Sidharth Sogani, Founder and CEO of Crebaco Global said, “This is a half baked move by the regulators as the stored profits of users will not be returning to the region. While there are several exchanges globally that users engage with, only nine have been issued notice to. Also, users might choose to move to decentralised exchanges over shifting to Indian exchanges.”