Earlier this week, the Reserve Bank of India (RBI), the country’s central bank, released a controversial statement which demanded banks involved with RBI to terminate connections with cryptocurrency-related businesses and trading platforms.

“It has been decided that, with immediate effect, entities regulated by RBI shall not deal with or provide services to any individual or business entities dealing with or settling VCs. Regulated entities which already provide such services shall exit the relationship within a specified time. A circular in this regard is being issued separately,” said the RBI, according to Quartz.

In the next few months, banks might not be able to provide financial services to local cryptocurrency exchanges, endangering the money flow of cryptocurrency trading platforms based in India. India’s central bank noted that the decision to disallow entities regulated by the RBI to deal with cryptocurrency businesses was made because universal or international response to the cryptocurrency market is not uniform, in terms of regulations and policies.

“Internationally, while the regulatory response to these tokens are not uniform, it is universally felt that they can seriously undermine the AML (anti-money laundering) and FATF (Financial Action Task Force) framework, adversely impact market integrity and capital control,” RBI deputy governor BP Kanungo said.

Many traders and investors misinterpreted the announcement of the RBI as an imposition of a ban on cryptocurrency trading and bitcoin holdings. But, the recent announcement of the RBI merely requested entities regulated by the central bank to terminate their relationships with cryptocurrency businesses, and the time period for this remains uncertain.

LiveCoinWatch reached out to India’s largest cryptocurrency exchanges. Sunny Ray, the co-founder of Unocoin, stated that the company has not received any notice from its banks, and released a statement on the matter. The Unocoin team emphasized that the new policy of RBI does not alter the legality of cryptocurrencies within India, given that India has prevented from either regulating or banning cryptocurrencies since 2014.

“Please note the notice issued doesn’t talk about the legality of cryptocurrencies as such and hence the legality status of Bitcoin or other crypto-currencies In India remain unchanged. This decision of RBI’s was more in line with it’s earlier statements on the risk associated with the cryptos,” the Unocoin team said.

As of current, India’s major cryptocurrency exchanges are operating normally, and considering that banks were given a three-month period to terminate their relationships with cryptocurrency businesses, if banks do decide to axe their support towards cryptocurrency exchanges, it will be in the third quarter of 2018.

The ambiguous statement from the RBI remains unclear to both cryptocurrency exchanges and local banks. As Unocoin explained, “RBI has decided to axe the relationship between it’s regulated bodies and any individual or business entities dealing with cryptocurrencies.” Potentially, financial service providers that are not regulated by the RBI could provide services to cryptocurrency exchanges in India, although unlikely.

Based on the overall ecosystem of the Indian cryptocurrency market and the financial landscape of the country, it is possible that the Indian central bank is concerned about the Know Your Customer (KYC) and Anti-Money Laundering (AML) aspect of local cryptocurrency exchanges, and it is working towards fixing or improving that system.

Issuing an indirect ban against cryptocurrency exchanges by cutting off their financial connections could lead to a spike in over-the-counter (OTC) trading volumes and unregulated user activities, that would be significantly more difficult for the Indian government and the RBI to oversee.


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