Money & Banking

Despite RBI clarification, crypto deals still remain a grey area for investors, banks

Surabhi Mumbai | Updated on June 02, 2021

Central bank asks bankers to allow transactions after customer due diligence

While banks have stopped warning customers against cryptocurrency transactions, investors are still not sure on the way forward.

Cryptocurrency investors do not expect to face problems in banking transactions after the notification by the Reserve Bank of India to ignore its directive post the Supreme Court ruling. But while most banks said they will abide by the RBI direction, they are looking for more regulatory clarity.

“Certain banks were not providing services or had reservations over cryptocurrency related transactions but this circular from the RBI will help banks have a clear stance,” said Ramalingam Subramanian, Head of Brand and Communication, CoinDCX The RBI had not issued a fresh circular post the Supreme Court ruling, which led to a lot of flux, he further said.

The expectation now is that banks will allow processing of such transactions through their payment gateways and not ask customers to desist from trading in such currencies.

Due diligence process

“The RBI notification clarifies that as of now there is no ban from the RBI on cryptocurrencies, and individuals holding or trading in cryptocurrencies and crypto businesses enabling this do not violate any RBI policy. Moreover, this also goes for banks — the mention of due diligence procedures clarifies that banks can service such individuals with suitable risk mitigation measures in place,” said Asheeta Regidi, Head, Fintech Policy, Cashfree.

The RBI had, on May 31, asked regulated entities to not cite its April 2018 circular on “Prohibition on dealing in Virtual Currencies” as it is no longer valid following the Supreme Court ruling. It also asked them continue carrying out customer due diligence in line with regulations for KYC, AML, Combating of Financing of Terrorism (CFT) and obligations of regulated entities under the Prevention of Money Laundering Act, (PMLA), 2002.

“Basis this notification, banks have stopped sending messages to customers advising them not to carry out cryptocurrency transactions. However, now it will be up to each bank on how to proceed with such transactions. Banks will carry out the due diligence as directed by the RBI,” said a banker who did not wish to be named, adding that there is a need to end the regulatory grey area around cryptocurrencies.

‘Speculative assets’

Another expert pointed out that cryptocurrencies continue to be speculative assets. “Most central banks are still examining what to do on the issue, while some have sent out advisories,” he said, adding that many are working on a Central Bank Digital Currency (CBDC). Significantly, both crypto investors and bankers are hoping for some direction from the Finance Ministry. The Centre had proposed to bring a legislation to ban cryptocurrencies but has put it on hold for now.

Published on June 01, 2021

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