RBI: Banks can’t cite 2018 crypto-ban order quashed by SC to caution customers against virtual currencies

RBI said that banks may also ensure “compliance with relevant provisions under Foreign Exchange Management Act (FEMA) for overseas remittances.”

Amid recent media reports of certain banks citing the 2018 crypto ban by the Reserve Bank of India (RBI) to caution their customers against dealing in virtual currencies, the central bank on Monday told banks that they cannot refer to the old order that was quashed by the Supreme Court last year. In a notification to all commercial and co-operative banks, payment banks, small finance banks, NBFCs, as well as payment system providers, the Chief General Manager Shrimohan Yadav 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 dated April 06, 2018. Such references (by certain banks and regulated entities) to the circular by banks/ regulated entities are not in order as this circular was set aside by the Hon’ble Supreme Court on March 04, 2020.”

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Yadav added, “As such, in view of the order of the Hon’ble Supreme Court, the circular is no longer valid from the date of the Supreme Court judgement, and therefore cannot be cited or quoted from.” The crypto community welcomed the clarification by the central bank. “It’s great to finally see this clarification from RBI to all banks. There was confusion amongst banks and this notification clears it. Banks are now free to work with crypto exchanges,” Nischal Shetty, Founder and CEO, WazirX told Financial Express Online.

The notification, however, read that banks “may” 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. This is apart from “ensuring compliance with relevant provisions under Foreign Exchange Management Act (FEMA) for overseas remittances.”

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“This nullifies the central bank’s instructions to banks to deny services to institutions and individuals dealing in Crypto. The rest of the standards are already into implementation and as such the denial of service by the banks citing the mentioned 2018 order does not have any basis further. Such clarification was required, and should quickly put things back to normal, resuming the banking support and restore the consumer confidence,” Ashish Mehta, Co-founder, DigitX told Financial Express Online.

This augurs very well for the greatly promising fledgling blockchain industry in India, said Pruthvi Rao, Co-founder and CEO, Zebi. “At this critical juncture, RBI has taken a great step to clear the ‘FUD’ (fear, uncertainty, and doubt) around this.” Recently, as per crypto exchanges, multiple banks had stopped facilitating bank transfers to crypto accounts last week by halting exchanges’ access to their application programming interfaces (APIs). Paytm Payments Bank had also followed suit when it stopped supporting crypto transactions, adding to the exchanges’ challenge of finding new banking partners.

The move by banks including ICICI Bank, HDFC Bank, Kotak Mahindra Bank, etc., was likely triggered by the RBI’s “informal” direction to banks to withdraw support to crypto exchanges and traders, as per a recent Reuters report. In April 2018, RBI had banned banks from supporting crypto transactions after cases of fraud through virtual currencies were reported. However, the Supreme Court had struck down the ban in March 2020. Among the reasons cited was that cryptocurrencies were not illegal though unregulated in India.

The suggestions/recommendations around cryptocurrencies in this story are by the respective commentator. Financial Express Online does not bear any responsibility for their advice. Please consult your financial advisor before dealing/investing in cryptocurrencies.