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Lack of Rules and Raids Freeze Crypto Exchanges

Following raids on various cryptocurrency exchanges by the Enforcement Directorate (ED), experts believe that the lack of defined rules for reporting suspicious transactions by a regulatory body has caused the exchanges to attract all management’s attention. The freezing of funds, although aimed at tracing money laundered by instant loan apps, will only harm existing retail users as they do not have the same security against their investments as money kept in banks .

The ED is investigating money laundering against several NBFCs and their fintech partners for predatory lending practices violating RBI guidelines. In the fund trail investigation, ED found that fintech companies divert large amounts of funds to buy crypto assets on exchanges and then launder them offshore. Cryptocurrency exchanges whose assets have so far been frozen have been accused of lacking sufficient due diligence, violating KYC requirements and failing to cooperate.

Lack of regulation

Experts believe, however, that if there was a regulatory body that specified the operation and mechanism of operation of exchanges, as RBI does for other financial institutions, the issues could have been better addressed.

Mohnish Wadhwa, CEO of business advisory firm CapDeck Advisors, said Activity area, “As there is no specified regulatory framework, exchanges have established their own rules for reporting abnormal activities carried out in a wallet and they further freeze these wallets. Therefore, there is a lot of ambiguity around what has been done well and what has been done badly through these exchanges.

If the regulations go into effect, even the ED would have some direction to examine whether the exchanges followed the guidelines rightly or not and conclude whether the exchanges followed their set of responsibilities, he added.

Industry players believe that exchanges would not be able to provide information about suspicious wallets because there is no recipient KYC present in the ecosystem. Therefore, freezing funds from the exchange only harms the users of the platform and does not help in tracking the laundered money.

Naimish Sanghvi, founder of Coin Crunch India, said Activity area, “In the event of a money freeze in banks, the RBI guarantees users reimbursement, but in the event of a crypto exchange, there is no such thing, causing users to lose the value of their funds. .” Although the freeze aims to obtain information on the trail of embezzled funds, he added that it harms users.

These investigations will eventually lead to the government’s final stance on cryptocurrencies. Wadhwa said, “All of these ED exercises will serve as the basis for choosing whether to regulate or ban cryptos in the country. User sentiment, however, was hampered by exchanges that flew on the directions radar. Many are rethinking investing and have even withdrawn funds from stock exchanges.

Published on

August 14, 2022