A new rule will require cryptocurrency companies and exchanges to store Know Your Customer (KYC) information and financial transactions of all their customers for five years. The move is seen as a positive step towards compliance and user safety on crypto platforms. However, experts also admit that this development will significantly increase the cost of compliance for cryptocurrency exchanges.
The country’s Computer Emergency Response Team (CERT-in), which is overseen by the Ministry of Electronics and Information Technology, has released a new set of rules stating that VPN providers and crypto exchanges must keep a wide range of data about their users. The new guidelines are expected to come into effect at the end of June.
Sathvik Vishwanathan, CEO of cryptocurrency exchange Unocoin, told indianexpress.com that this is a positive step towards regulation. “We were already storing all of our users’ data from the start, so this decision does not affect us,” he said, adding that “…the data would help prosecute tax evaders and any crime using crypto.”
The new rule only applies to cryptocurrency exchanges that hold custody of crypto wallets on behalf of their users. A custodial crypto wallet is a wallet where your assets are kept for you. This means that a third party will hold and manage your private keys on your behalf. In other words, you won’t have full control of your funds – or the ability to sign transactions.
“No keys, no security,” said Kashif Raza, a crypto and blockchain expert. “While users prefer custodial crypto exchanges because there are certain advantages of using these types of exchanges, such as the ability to deposit and withdraw fiat currency, but they do not guarantee customer security.”
However, Raza and others like him believe that complying with the new set of rules will not be easy for exchanges. Ensuring user data such as their name, address, contact details and maintaining transaction record would require massive infrastructure.
“The exchanges would require storing data for five years and given the volume of trading, which occurs on crypto exchanges, this will increase costs as the new directive states that all financial transaction data must be stored. This means an additional burden on exchanges,” explained Sharat Chandra, Vice President of EarthID.
Another challenge would be in terms of storing data locally in India, especially with foreign exchanges. Previously payment giant Mastercard was in trouble with the issue of local storage of user data.
“This development also signals that the government is moving in a certain way towards regulatory oversight. But what we also need are guidelines on data storage first, and only then can we move on to other aspects of regulation such as investor protection rights,” Chandra added.
Meanwhile, some experts are not positive about this development and believe that it will only sow fear among crypto traders. “The government could ban access to decentralized exchanges, as well as global exchanges, and without a VPN, you can’t bypass them. It looks like the government is digging a grave for the crypto community,” said Hitesh Malviya, Founder of IBC Capital.
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Rule Experts Directing Exchanges To Store Customer Data
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