The Reserve Bank of India (RBI) issued a notification on 31st May 2021 w.r.t. customer due diligence for transactions in virtual currencies (VC), clarifying that bank and other regulated entities can deal in cryptocurrency (Notification). This directive has come against the backdrop of some banks and other entities who have been citing the RBI circular dated 6 April, 2018 to caution the investors against dealing in cryptocurrency. Previously in 2018, the RBI had issued a circular cautioning users, holders and traders of virtual currencies, including bitcoins, regarding various risks associated with dealing in VC and prohibited the entities regulated by the RBI from dealing in VC or providing services for facilitating any person or entity in dealing with or settling VC. However, this circular was set aside by the Supreme Court of India in March, 2020.
Vide this Notification, RBI has now clarified that reference to the RBI circular of 2018 by banks and regulated entities are not in order as this circular was set aside by the Supreme Court and is no longer valid from the date of the judgement of the Supreme Court, therefore, cannot be cited or quoted from. The Notification further states that the banks, as well as other entities, may continue to carry out customer due diligence processes in line with regulations of governing standards for KYC, FEMA, etc.
However, very recently, the RBI Governor stated that there is no change in RBI’s position and they have major concerns around cryptocurrencies, further, it is for each investor to do his/her due diligence and take a very careful and prudent call.
The Notification may be seen as a glimpse of hope for the investors and the stakeholders as, even while, the RBI doesn’t endorse VCs, the reality remains that VCs are currently unregulated in the country and the banks, and other entities too, have to abide by the decision of the Supreme Court.
