Indian Authorities are Requested to Restore Crypto Exchanges' Access to UPI
The Unified Payments Interface (UPI), a real-time payment system utilised by the cryptocurrency industry, has been suggested for usage once more by the Indian government and central bank.
According to numerous people with knowledge of the situation, India's government and central bank have received suggestions requesting them to allow the real-time payment system known as the Unified Payments Interface (UPI) to once again be used by the cryptocurrency business.
There have previously been two suggestions. According to a person with knowledge of the decision, a third recommendation would be presented "in the coming few weeks" by the Bharat Web3 Association (BWA), a newly established advocacy body for crypto policy in India.
Even if the plans are not coordinated, they appear to be the first significant effort by India's crypto stakeholders to amend the laws that now control the booming sector after it faced a number of setbacks in the form of heavy taxes, a crypto winter, and a "shadow ban." Indian payment processors cut off banking access to cryptocurrency exchanges as a result of the shadow ban. In theory, UPI services were stopped about the same time last year.
Since the epidemic, UPI use in India has grown quickly; in 2022, there will be 74 billion UPI transactions totaling $1.5 trillion. With UPI, customers may use a QR code connected to their bank account to pay for groceries and other items. Because businesses are not charged a fee for taking UPI payments, the system is utilised all throughout the country.
How Indian exchanges lost UPI Access
The issue on the payment rails appears to be brought on by various sources' entry into India. Coinbase began operating in India on April 7, 2022, with executives praising how simple it will be to trade on the business app with payments handled using UPI.
The National Payments Corporation of India (NPCI), the organisation in charge of overseeing UPI, tweeted hours after the incident to emphasise that it was "not aware of any crypto exchange using UPI." The Reserve Bank of India (RBI), the country's monetary authority, oversees the NPCI.
An Indian crypto exchange that wished to remain anonymous since the situation hasn't been made public gave one suggestion to reinstate UPI access. The cryptocurrency exchange stated in a statement that it has "submitted a representation with the NPCI, seeking the removal of restrictions on use of UPI services."
The PMLA or Prevention of Money Laundering Act, which India added in March 2023, made cryptocurrency exchanges, non-fungible token (NFT) marketplaces, and custody service wallet providers legally responsible for keeping an eye on questionable financial activity. The proposal was made shortly after that. The jury was split on what this meant for India.
Legal professionals argued that this provided the industry's regulators some much-needed muscle. Meanwhile, proponents of the cryptocurrency market said that this provided the market "more legitimacy" since "adding crypto to anti-money laundering rules is some semblance of regulation," a senior industry participant said on Monday.
"Our argument emphasises that FIU (Financial Intelligence Unit) registration and that VDA (Virtual Digital Assets) service providers are now recognised as'reporting entities' under the PMLA. According to the same crypto exchange's statement, "We feel that these guardrails go a long way in helping to protect VDA transactions and arresting wrongdoing, if any.
The second suggestion comes from public policy advice company Black Dot, according to its founder Mandar Kagade. It was produced in pieces over the previous several weeks, both before and after India added cryptocurrency to anti-money laundering legislation for various authorities.
The company has worked with the Indian government in the past. Black Dot addressed the plan to organisations including the NPCI, the RBI, and Jayant Sinha, the chair of the Standing Committee on Finance, according to letters from the Finance Ministry admitting receipt of the proposal.
Inclusions in Black Dot's proposal
According to Black Dot's plan, UPI's flawless user experience promotes transactions to stay onshore by giving regulators and law enforcement a visibility trail. According to the Economic Times, which was cited, after UPI access was shut down, 80% of digital asset transactions may now be carried out between individuals.
Another statement in the plan reads, "arbitrarily denying a class of investors from accessing instruments of their choice via UPI when another group of investors has access to their choice (e.g., IPO) may also violate Article 14 (equality before the law)."
The proposal urges NCPI to classify cryptocurrency exchanges according on how they adhere to standards set by banks.
Although it's uncertain whether regulators would allow UPI access to cryptocurrency exchanges again, doing so would give the market more legitimacy and make it considerably simpler for merchants to begin or continue trading on cryptocurrency exchanges.
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