Crypto Exchange WazirX Gets Show Cause Notice From Enforcement Directorate

WazirX, one of India's largest cryptocurrency exchanges, has been issued a show cause notice by the Enforcement Directorate.

The show cause notice has been issued for contravention of the Foreign Exchange Management Act 1999 for transactions involving cryptocurrencies worth Rs 2,790.74 crore, the agency said in a post on its official Twitter handle on Friday.

While cryptocurrencies are currently not illegal in India, the government has been mulling regulation pertaining to these tokens for some time. A bill looking to ban cryptocurrencies had been listed in the budget session of Parliament but was not introduced.

In 2018, the Reserve Bank of India had issued a circular barring regulated entities like banks from providing services to businesses and customers dealing in cryptocurrencies. That circular was struck down by the Supreme Court in March 2020 on grounds that the action was not "proportionate" as the regulator failed to show the damage these tokens were doing to the financial system.

Since then, volumes on cryptocurrency exchanges are believed to have surged. In recent months, banks have once again started to pull back on service to crypto customers following informal guidance from the regulator, BloombergQuint reported.

On May 31, the RBI clarified that its 2018 circular is no longer valid and cannot be cited by banks as a reason to deny services.

The banking regulator, however, asked banks and other regulated entities to continue customer due diligence on the basis of other existing provisions, such as Know Your Customer, Anti-Money Laundering, Combating of Financing of Terrorism.

Further, it asked regulated financial institutions to comply with obligations under Prevention of Money Laundering Act and provisions related to overseas remittances under the Foreign Exchange Management Act.