Bybit has officially suspended its trading services in India. This decision, which kicks in on January 12 at 8:00 a.m. UTC, comes as a direct response to some new regulatory moves in the country. Bybit stated, as they often do, that they're just trying to comply with “all applicable rules and regulations.” This means Indian users will be locked out from opening new accounts, executing trades, or placing orders on Bybit’s platform. But, good news, right? Withdrawals will still be available to users.
Existing derivatives positions will be limited to “Close-Only” mode. So, you can manage and close your positions, but you can’t add or modify them. This isn't the first time Bybit's been in hot water over regulations. Back in August 2024, they had to stop operating in France because of regulatory issues, although they did say they were trying to get a license there. Then, in late 2024, Malaysia's Securities Commission ordered Bybit to halt operations there as well, citing unregistered exchange activities. Bybit complied, of course.
Despite all this, Bybit seems to think there's still hope for them in India. They expect to snag a license as a virtual digital asset service provider in the “coming weeks.”
India's Regulatory Landscape: A Maze of Compliance
The regulatory landscape in India is a bit of a maze. The Financial Intelligence Unit (FIU) is currently looking at applications from four additional offshore crypto exchanges to resume operations in India. These exchanges were previously banned for not complying with Anti-Money Laundering (AML) regulations. After Binance and KuCoin got the green light recently, at least two more exchanges are expected to get clearance by the end of the fiscal year 2025. But only after a thorough review of transaction transparency, suspicious activity reporting, and related compliance measures.
Earlier this year, the FIU blocked access to nine foreign crypto exchanges, including Binance, for AML non-compliance. Binance and KuCoin have since registered with the FIU, while OKX just packed up and left, citing regulatory challenges. Binance registered as a reporting entity with the FIU in August after reportedly paying a $2 million penalty.
The Challenges Ahead
Fintech startups in the APAC region, including India, are wrestling with a complicated web of regulations. They need to tackle a whole bunch of legal requirements, from licensing to consumer protection, data privacy, AML, and cybersecurity. Each country has its own rules, which makes it a nightmare if you're trying to expand into multiple markets.
Startups need to do their homework. They have to figure out the regulatory requirements in each target market and come up with strategies to meet them. This means understanding the right licensing regimes, whether it's for payment processing, digital banking, investment advisory, or cryptocurrency exchange.
What Binance and KuCoin's Success Means
The recent approvals of Binance and KuCoin provide some key takeaways for other crypto exchanges looking to operate in India.
First off, if other crypto exchanges want to play in India, they need to register with the Financial Intelligence Unit (FIU) of India. This registration is crucial for regulatory oversight and compliance with India's anti-money laundering (AML) and Know Your Customer (KYC) regulations.
Secondly, if exchanges have been operating illegally, expect to pay up. KuCoin paid a penalty of ₹35.5 lakh (roughly $41,000), and Binance is expected to pay around $2 million.
Next, exchanges need to have solid transaction monitoring systems in place to catch and report suspicious activities. Transactions over certain amounts will get additional scrutiny, so exchanges need to keep detailed records.
Strict adherence to KYC and AML guidelines is also a must. This means verifying customer identities, monitoring transactions, and reporting any suspicious activities to the FIU.
The FIU wants to see every transaction. Exchanges must ensure that transactions are transparent and traceable.
Also, offshore crypto exchanges must have a principal compliance officer registered with the FIU, providing their address and details. This ensures there's someone to talk to when things go sideways.
Finally, compliance isn't a one-time thing. Even after registering, exchanges must keep up with compliance requirements. Binance is still going through compliance proceedings until its penalty is finalized.
Where Does Bybit Go from Here?
Even getting a virtual digital asset service provider license is just the start. Here are a few more points to consider for long-term success in India's crypto market:
First, you need to register with the Financial Intelligence Unit – India (FIU-IND) and comply with the Prevention of Money Laundering Act (PMLA), Anti-Money Laundering (AML), and Know Your Customer (KYC) regulations.
Second, you need to follow existing laws, including AML, KYC, and Combating the Financing of Terrorism (CFT) guidelines. This means regular reporting of crypto transactions, verifying sources of funds, conducting risk assessments, and performing Customer Due Diligence (CDD) checks.
Third, the Indian crypto market is fiercely competitive and regulatory uncertainty is always lurking. VDA SPs must be nimble and ready to adapt to changing conditions.
Building trust with users and ensuring a smooth experience is also crucial. Properly implemented KYC processes can help with this while minimizing friction for new users.
Finally, the market has both opportunities and challenges. Local exchanges are seeing growth as investors move away from blocked offshore platforms. But the lack of clear regulatory frameworks and potential government interventions still hang over the market. So it's not all sunshine and rainbows.
Summary: Compliance in a Volatile Market
In summary, while a license is necessary, long-term success in India's crypto market also requires ongoing compliance with regulations, the ability to adapt to market changes, and building trust with users. Bybit's experience highlights the importance of understanding local regulations and the potential for growth in a rapidly evolving market.
