After the alleged suspension of India’s national Unified Payments Interface (UPI) in 2022, both a crypto exchange and a policy business in the country have separately sought permission from the government to restore access for crypto enterprises.
According to multiple sources familiar with the matter, the Indian government and central bank have received proposals requesting the restoration of access to the Unified Payments Interface (UPI), a widely popular real-time payment system, for the crypto industry. Nftstudio24 reports on the developments.
Nftstudio24 has learned that there have been two previous proposals, and according to an individual familiar with the matter, a third proposal is expected to be submitted by the Bharat Web3 Association (BWA), a recently formed crypto policy advocacy group in India, in the next few weeks.
While the plans may not be coordinated, they represent the initial substantial endeavor by India’s crypto stakeholders to reform the regulations governing the thriving sector. This comes after the industry encountered setbacks such as high taxes, a crypto winter, and a “shadow ban.” The shadow ban led Indian payment processors to sever banking connections with cryptocurrency exchanges. It was around the same time last year when UPI services were ostensibly halted.
Since the onset of the pandemic, the utilization of UPI in India has witnessed rapid growth. In 2022 alone, it is projected that there will be a staggering 74 billion UPI transactions amounting to a total of $1.5 trillion. UPI enables customers to make payments for groceries and various goods using a QR code linked to their bank account. Due to the absence of fees charged to businesses for accepting UPI payments, the system is extensively utilized across the country.
How UPI access was lost by Indian exchanges
The crisis regarding payment rails arose when Coinbase entered the Indian market. Coinbase’s launch in India on April 7, 2022, introduced a new dynamic to the crypto industry by offering a user-friendly trading app that facilitated payments through UPI. However, the National Payments Corporation of India (NPCI), responsible for UPI, quickly responded to the situation by tweeting that they were not aware of any crypto exchange using UPI. The NPCI operates under the oversight of the Reserve Bank of India (RBI), the country’s monetary authority.
A confidential Indian cryptocurrency exchange, preferring to remain anonymous due to the ongoing nature of the situation, has put forward a proposal to restore UPI access. In a statement provided to Nftstudio24, the exchange revealed that it has submitted a representation to the National Payments Corporation of India (NPCI) requesting the lifting of restrictions on the use of UPI services. The exchange aims to address the issue and advocate for the reinstatement of UPI access for the crypto industry.
India’s Implementation of PMLA Empowers Crypto Exchanges and NFT Marketplaces, Brings Legitimacy to the Industry
The implementation of the Prevention of Money Laundering Act (PMLA) in India in March 2023 placed legal obligations on cryptocurrency exchanges, non-fungible token (NFT) marketplaces, and custody service wallet providers to monitor suspicious financial activities. Following the introduction of this act, a proposal was made regarding the implications it would have for India. Legal experts viewed it as a significant step toward empowering regulators in the industry. On the other hand, supporters of the cryptocurrency market saw it as a move that brought more legitimacy to the industry, as incorporating crypto into anti-money laundering regulations provided a sense of regulation and oversight. A senior industry participant highlighted this perspective, stating that it signifies a form of regulation for the market.
The argument put forth emphasizes that the registration of Financial Intelligence Unit (FIU) and the recognition of Virtual Digital Assets (VDA) service providers as “reporting entities” under the Prevention of Money Laundering Act (PMLA). According to the statement from the crypto exchange, they believe that these measures act as important safeguards to protect VDA transactions and to prevent any potential wrongdoing.
The second suggestion was put forward by the public policy advice firm Black Dot, as stated by its founder Mandar Kagade. The proposal was prepared in stages over the past few weeks, taking into account the introduction of cryptocurrency into anti-money laundering legislation by Indian authorities. Black Dot, which has previously collaborated with the Indian government, shared the proposal with organizations such as the NPCI, RBI, and Jayant Sinha, the chair of the Standing Committee on Finance. Emails seen by Nftstudio24 indicate that the Finance Ministry received and acknowledged the proposal.
What is contained in Black Dot’s proposal
Black Dot’s plan highlights that the seamless user experience of UPI encourages transactions to remain within the country, providing regulators and law enforcement with a transparent record. The Economic Times report, cited in the plan, suggests that following the suspension of UPI access, approximately 80% of digital asset transactions may now be conducted peer-to-peer. The plan further states that denying a specific group of investors access to their preferred investment instruments through UPI, while allowing access to another group (e.g., IPO), may potentially infringe upon Article 14, which guarantees equality before the law.
The proposal recommends that the NPCI classify cryptocurrency exchanges based on their adherence to standards established by banks.
While it remains uncertain whether regulators will reinstate UPI access for cryptocurrency exchanges, such a move would enhance the market’s legitimacy and significantly simplify trading for merchants who wish to enter or continue participating in cryptocurrency exchanges.
