1. Understanding Virtual Digital Asset Service Providers:

- Virtual Digital Asset Service Providers or VDA SPs are entities extending digital asset services, including but not limited to cryptocurrency exchanges.

- VDA SPs can operate both within and outside the territorial boundaries of India.

2. Why Virtual Digital Asset Service Providers are in the News:

- The Financial Intelligence Unit India (FIU IND) recently issued show-cause notices to nine offshore VDA SPs, which include renowned entities like Binance and Huobi, for unlawful operations.

- It has been identified that these VDA SPs were functioning contrary to the anti-money laundering regulations as per the Prevention of Money Laundering Act (PMLA), 2002.

3. Regulatory Framework for the VDA SPs in India:

- Since March 2023, India has set certain regulations for VDA SPs under the Prevention of Money Laundering Act (PMLA), based on the Anti-Money Laundering/Counter Financing of Terrorism (AML-CFT) framework.

- A part of these regulatory measures includes the rigorous process of verifying client identities, maintaining records of financial transactions, and registering with FIU IND as a Reporting Entity.

- Non-compliance with the said regulations can lead to the issuance of notices and requests to block URLs.

4. Current Compliance Scenario:

- As per the most recent data, 31 VDA SPs have already registered with FIU IND, thereby showcasing their willingness to comply with the set norms and regulations.

General Knowledge Connect:

1. About FIU IND:

- The Financial Intelligence Unit – India (FIU-IND) serves as the central nodal agency responsible for receiving, processing, analysing, and disseminating information related to suspect financial transactions to enforcement agencies and foreign FIUs.  

2. About PMLA 2002:

- The Prevention of Money Laundering Act, 2002 (PMLA) forms the core of the legal framework put in place by India to combat money laundering and the financing of terrorism. PMLA and the Rules notified thereunder impose an obligation on banking companies, financial institutions, and intermediaries to verify the identity of clients, maintain records, and furnish information to FIU-IND.

3. Importance of VDA SPs Regulation:

- The regulation of VDA SPs is crucial in preventing illegal activities like money laundering and terrorism financing.

- It encourages transparency, accountability, and enhances the overall integrity of the financial system by ensuring that VDA SPs follow strict service provisions guidelines.