India Looks to Tighten Noose Around High-value Crypto OTC

The Financial Intelligence Unit (FIU-IND) is reportedly tightening the noose around the over-the-counter (OTC) crypto transactions. 

According to a recent media report, the agency has asked at least three crypto exchanges to share data of OTC transactions above USD 10,000 (INR 9.43 lakh approximately). The move is expected to keep a tab on transactions that are large in nature and may exploit the loopholes in compliance and regulatory norms.

Over-the-counter, or OTC, crypto transactions are large crypto trades executed privately between counterparties instead of through a public exchange order book. They are typically used by institutions, HNIs or treasury participants who want to buy or sell sizable positions without causing sharp price movement on the open market. The main reasons people use OTC are execution certainty, lower slippage and reduced market signalling.

Potential impact 

Speaking to Entrepreneur India, a WazirX spokesperson said that serious investors need compliant on-ramps and off-ramps, clean tax records and reliable counterparties. Over time, stronger AML standards should increase institutional confidence rather than reduce it.

“…Some users who prioritise opacity may try to move towards self-custody or non-compliant P2P routes. However, that is precisely why consistent enforcement across the ecosystem matters…,” the spokesperson added. 

According to the above-mentioned report, the agency has asked the exchanges to keep a track of such transactions since January this year. A retrospective move is likely to throw in a big operational challenge for exchanges dealing with OTCs. 

“The compliance requirement is not just to record the immediate account holder, but to understand who ultimately owns, controls or benefits from the transaction, especially where companies, intermediaries or layered structures are involved. This requires stronger customer due diligence, beneficial ownership mapping, transaction monitoring, case management workflows and better audit trails across fiat and crypto movements,” said the spokesperson, noting WazirX places compliance first and supports the objective of making the ecosystem safer and more accountable.

As far as privacy concerns go, the spokesperson noted that identity tracing does not materially alter the investment thesis for legitimate crypto investors. Regulated platforms already carry out KYC and AML checks across user segments. OTC desks may historically have offered more discretion around execution, but discretion cannot mean anonymity from lawful compliance checks. Regardless of capital, regulatory certainty and clean provenance of funds are more important than avoiding identity verification.

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Tightening the screws

The government has taken various measures to ensure the crypto space in India remains regulated and monitored given the risks. Earlier this year, the FIU-IND introduced stringent KYC norms and anti-money laundering mandates for all crypto platforms operating in India. 

Exchanges are now classified as virtual digital asset (VDA) providers and that they will need to capture live selfie photos using software that ensures physical presence, provide government-issued IDs such as Aadhaar, voter ID or passport, mobile numbers, and even capture users’ IP addresses, device details, geolocation at the time of onboarding. The overall objective looks like making the crypto exchanges more accountable and transparent, and minimise risks of misuse such as money laundering.

Some other important highlights include the penny-drop rule wherein a small amount is transacted to verify the bank account ownership. There’s also mention of high risk clients, who have to update their KYC every six months.

ALSO READ: India’s Tightened Crypto Norms: Push To Align Financial Integrity with Digital Privacy

Not a ban

The reported move to track high-value OTCs does not mean a crackdown on the overall ecosystem. Experts say, it rather fixes a few blind spots and paves the way for better compliance. 

As far as the USD 10,000 threshold goes, it is not out of line with global AML thinking. Several jurisdictions use similar thresholds for higher-value reporting obligations, while FATF standards for virtual assets also require strong originator and beneficiary information controls. 

Experts say India’s approach should be seen in its local context. India’s security, fraud and illicit-finance risks are different from those of many Western countries, so regulators may reasonably apply a more conservative lens to crypto flows.

Moreover, the onus is also on the exchanges and operators to ensure stricter compliances and cooperate with the agencies. 

There must also be alignment with India’s privacy rules. Nikhil Jhanji, Principal Product Manager at Privy by IDfy, had told Entrepreneur India that crypto platforms must shift from broad data collection to precise, purpose driven verification. 

Jhanji also noted that DPDP encourages privacy by design where identity and transaction legitimacy are established through selective disclosure and strong access controls, without retaining unnecessary personal data. Traceability and privacy are no longer opposing forces when systems are built correctly.