Banks such as HDFC and SBI wrote to customers cautioning them against dealing in virtual currencies based on a circular which has been struck down.

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Money Cryptocurrency Monday, May 31, 2021 - 20:06

The Reserve Bank of India on Monday said that banks warning customers from trading in virtual currencies based on a 2018 circular was "not in order" as the circular is no longer valid. This came after banks such as HDFC Bank and SBI wrote to customers cautioning them against dealing in virtual currencies, and cited a 2018 circular from the Reserve Bank of India. This 2018, circular, however, was struck down by the Supreme Court. 

In its circular, the RBI said that references to the 2018 circular “are not in order” as it was set aside in March 2020 in a plea filed by the Internet and Mobile Association of India. “As such, in view of the order of the Hon’ble Supreme Court, the circular is no longer valid from the date of the Supreme Court judgement, and therefore cannot be cited or quoted from,” the RBI said.

“Banks, as well as other entities addressed above, may, however, 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,” the RBI’s circular added. 

WazirX CEO Nischal Shetty called it a ray of hope for the Indian crypto ecosystem. “We really appreciate the Reserve Bank of India’s clarification on this. We hope that this circular encourages banks to update their compliance teams and provide banking access to Indian crypto exchanges,” he said.

Similarly, BuyUcoin founder Shivram Thakral said that the crypto industry has been facing issues when it comes to using formal banking channels for crypto trades, and that this circular will clear the air. “We as an exchange strictly follow 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,” he said.

The emails from banks came amidst lack of regulations surrounding cryptocurrency in the country, with various entities having varying views. Also, the Cryptocurrency Bill, which was supposed to be introduced in the previous Parliament session but wasn’t, was reported to be to ban cryptocurrency in the country, which led to further confusion. 

In emails to customers, HDFC wrote, “We have observed that your account reflects probable virtual currency transactions which aren’t permitted as per RBI guidelines.”

“RBI has also highlighted that regulated entities shall not deal in Virtual Currencies (VC) or provide services for facilitating any person or entity in dealing with or settling VCs and banks need to exit relationship with such customers,” it added. It also required customers to visit a bank branch within 30 days to “clarify the nature of these transactions”. It added that the bank will be compelled to restrict the account if they do not hear from the customer.

Similarly, the State Bank of India had told customers that the RBI has “not given any license/authorization to entities regulated by them to operate in cryptocurrency schemes or any form of virtual currencies such as Bitcoins”.

“Please note, usage of credit card for transactions on virtual currency merchant platforms may lead to suspension/cancellation of your SBI Credit Card in terms of the Cardholder Agreement,” it added.

This also comes amidst a surge in cryptocurrency transactions with exchanges seeing a massive surge in trading volumes. However, at the same time, banks have been distancing themselves from these exchanges, with multiple banks refusing to provide services — including YES Bank, ICICI Bank and recently, Paytm Payments Bank. The Economic Times reported that exchanges are now looking to move the Supreme Court on whether RBI can direct banks to stop dealing with exchanges.

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