India Tightens Crypto KYC Rules With Live Selfie Checks and Enhanced Due Diligence

India has taken another firm step toward regulating the cryptocurrency sector, with its Financial Intelligence Unit (FIU) announcing stricter identity verification and compliance requirements for crypto exchanges. According to a report by Press Trust of India, the updated rules, effective January 8, are aimed at strengthening safeguards against money laundering and terror financing while tightening oversight of virtual digital asset (VDA) platforms.

Under the new guidelines, cryptocurrency exchanges operating in India must implement advanced know-your-customer (KYC) measures. These include verifying users through a live selfie process that requires blinking, ensuring both liveliness and authenticity. Exchanges are also required to log precise geographical coordinates, along with the date, time, and IP address of each user during onboarding. These steps are intended to prevent identity fraud and misuse of crypto platforms.

In addition to the mandatory Permanent Account Number (PAN), users must now submit at least one additional government-issued document such as a passport, driver’s license, Aadhaar card, or voter ID. Mobile numbers and email addresses must be verified through one-time passwords, further strengthening identity confirmation. User bank account ownership must be authenticated using the “penny-drop” method, which involves a small refundable charge of one rupee to validate bank details.

The FIU has also mandated enhanced due diligence for high-risk users. Clients linked to tax havens, Financial Action Task Force (FATF)-related jurisdictions, politically exposed persons, or non-profit organizations will face more rigorous checks at least every six months. These measures align India’s crypto compliance framework more closely with global anti-money laundering standards.

The new rules also place firm restrictions on crypto activities. Exchanges are prohibited from supporting initial coin offerings (ICOs) or initial token offerings (ITOs), which regulators say lack a justified economic rationale and carry heightened money laundering and terror financing risks. Platforms are also barred from using privacy tools such as tumblers or mixers that obscure transaction trails.

All crypto exchanges must register with the FIU, report suspicious transactions, and retain user data for a minimum of five years. While India allows trading of VDAs on FIU-registered platforms, cryptocurrencies remain illegal as legal tender and cannot be used for everyday payments. This cautious but tightening regulatory approach signals India’s intent to closely monitor the crypto ecosystem while allowing limited, regulated participation.