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RBI: Banks must not cite 2018 crypto-ban order as SC struck it down

Banks have been cautioning users against purchasing cryptocurrency


After multiple reports that banks were flagging transactions involving the purchase of cryptocurrency, in some cases sending notices to customers warning of their account’s possible termination, the Reserve Bank of India has issued a clarification over the specific circular being cited by some banks.

In a circular released on Monday titled ‘Customer due diligence for transactions in Virtual Currencies’, the RBI said, “It has come to our attention through media reports that certain banks/ regulated entities have cautioned their customers against dealing in virtual currencies by making a reference to the RBI circular DBR.No.BP.BC.104/08.13.102/2017-18 dated April 06, 2018.”

Noting that its 2018 order banning banks from dealing in crytocurrencies had been struck down by the Supreme Court in March 2020, following a complaint by the Internet and Mobile Association of India, the RBI said the circular was no longer valid and hence could not be cited or quoted from.

Since the Supreme Court struck down the RBI’s ban, there has been no regulatory framework for cryptocurrencies in India. Reports that the Ministry of Corporate Affairs (MCA) is mulling the “Banning of Cryptocurrency and Regulation of Official Digital Currency Bill, 2019” have suggested that the government in not keen on allowing the sale or trade of virtual currencies not under its ambit (given the decentralised nature of cryptocurrencies).

“Existing laws are inadequate to deal with (cryptocurrencies),” Anurag Thakur, Union minister of state for finance, said in Parliament on February 9.

As per the draft bill, the mining, holding, selling and trading of cryptocurrency are proposed to be banned.

Despite the bill not being introduced or passed, however, banks had already started disallowing transactions and in some cases even warning users of account suspension if they continued to trade in the digital assets.

However, the RBI added that banks could continue to carry out due diligence in line with existing regulations. “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,” it said.

The move was welcomed by crypto-currency advocates in India, with Nischal Shetty, CEO of the WazirX exchange, replying to a tweet by a customer who said HDFC bank had asked him not to deal with crypto, telling the customer to show the RBI’s latest circular to his bank.

India’s tryst with cryptocurrency took a surprise turn after Vitalik Butarin, co-founder of the Ethereum blockchain, made a $1 billion donation to India’s COVID-19 Crypto Relief Fund entirely in the crypto-coin Shiba Inu, which had made record gains in 2021. This was the largest single financial aid given to India since the COVID-19 pandemic began.

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