RBI Asks Banks Not to Refer to Its 2018 Circular on Cryptocurrencies

RBI on Monday asked banks, NBFCs, and payment system providers not to refer to its earlier virtual currencies-related circular, that was issued in April 2018 and later aside by the Supreme Court, in their communications to customers.

The latest directive comes against the backdrop of some banks and regulated entities citing the circular and cautioning customers against dealing in virtual currencies.

The circular pertaining to virtual currencies was issued by the Reserve Bank of India (RBI) on April 6, 2018 and the same was set aside by the Supreme Court on March 4, 2020. As per the 2018 circular, entities regulated by RBI were prohibited from "providing any service in relation to virtual currencies including those of transfer or receipt of money in accounts relating to the purchase or sale of virtual currencies".

In a circular with the header ''Customer Due Diligence for transactions in Virtual Currencies (VC)'', RBI on Monday said that it has come to its attention through media reports that certain banks/ regulated entities have cautioned their customers against dealing in virtual currencies by making a reference to the circular that was issued on April 6, 2018.

"Such references 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... As such, in view of the order of the Hon'ble Supreme Court, the circular is no longer valid from the date of the Supreme Court judgement, and therefore cannot be cited or quoted from," the apex bank said.

The circular, issued on Monday, is addressed to all commercial and co-operative banks, payments banks, small finance banks, NBFCs, and payment system providers.

According to RBI, banks as well as other entities, may, however, 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 PMLA in addition to ensuring compliance with relevant provisions under FEMA for overseas remittances.

PMLA refers to Prevention of Money Laundering Act, 2002 and FEMA is Foreign Exchange Management Act.

Private digital currencies/ virtual currencies/ crypto currencies have gained popularity in recent years. In India, the regulators and governments have been sceptical about these currencies and are apprehensive about the associated risks, RBI had said in its Booklet on Payment Systems issued in January 2021.

Nevertheless, RBI was exploring the possibility as to "whether there is a need for a digital version of fiat currency and in case there is, then how to operationalise it, as per the booklet.

The government is also in the process of bringing a bill on crypto currencies as existing laws are inadequate to deal with issues concerning them.