RBI clears the air on crypto services

Says banks can’t cite its April 2018 circular for denying such products to customers

The Reserve Bank of India (RBI) on Monday clarified that banks can no longer cite its circular on cryptocurrencies for not offering such products to customers. However, it added that lenders must adhere to local rules, which are quite exclusionary.

The central bank, in its circular dated April 6, 2018, had prohibited banks from dealing in cryptocurrencies or offering any service to customers on them.

The circular was challenged in the Supreme Court, which set aside the rules on March 4, 2020.

However, the RBI said that banks continue to cite the 2018 circular to justify why they are not offering services on cryptocurrencies.

“In view of the order of the Supreme Court, the circular is no longer valid from the date of the judgment, and therefore cannot be cited or quoted from,” the RBI said in a clarification on its website.

However, the RBI also told banks that they must continue to carry out customer due 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.”

This essentially means that banks can offer services to customers, but they will have to go through a whole lot of checks and balances before doing so, including ensuring that funds are not used for money laundering or financing terrorism.

Since crypto currencies are not backed by central banks and decentralised by nature, finding their end use would be difficult.

According to a senior banker, it almost maintains status quo, unless some cryptocurrency exchange declares that it will take the responsibility of checking the background of end use, which may not be possible.