India continues to strengthen its crypto regulatory framework with another piece of legislation. Under the new rules, all crypto exchanges, custodians, and intermediaries will be required to undergo regular cybersecurity audits in light of rising threats from hacks, fraud, and systemic vulnerabilities. The latest regulatory push reflects both India’s concern over its rapidly growing cryptocurrency sector and global efforts to impose stricter regulation on digital assets.
Why India Is Acting Now
India’s cryptocurrency sector has undergone massive expansion in recent years. It is estimated that there will be 123.35 million Indian crypto users by 2026. Compared to some other countries, the user penetration rate is still relatively low, but that is due to India’s massive population. In terms of absolute numbers, the country ranks among the top five crypto markets in the world.
One of the unintended consequences of such rapid growth is a significant increase in fraudulent activities. Global events, such as hacks of Bybit and KuCoin, along with local frauds like Ponzi schemes and fake wallets, have raised alarms in the Indian government, prompting it to act. The result has been increased activity in creating new regulations, with more expected in the pipeline. Officials have emphasized that without robust cybersecurity, retail investors—who make up the bulk of India’s crypto traders—face disproportionate risks. The latest measure targets precisely this concern, as mandatory audits are designed to prevent consumer fund fraud.
What the Mandate Covers
The exact details of the new law are still unclear, but several points have already been confirmed. It requires crypto exchanges and intermediaries to undergo independent cybersecurity audits by certified firms. The audit results will be submitted to a central authority, most likely either the Financial Intelligence Unit (FIU) or the Reserve Bank of India (RBI). Any irregularities found must be fixed within a set deadline for the crypto exchange to continue operating in India. Failure to comply could result in license suspension, financial penalties, or even criminal liability for executives.
Industry Reactions
The reactions from India’s crypto community have been mixed so far. Supporters applaud the move, saying it will bring much-needed stability to the market and increase investor confidence. Critics, on the other hand, argue that the cost of compliance will hurt crypto exchanges’ operations and may even force smaller ones to close. According to Webopedia, such regulatory shifts often create short-term challenges but can ultimately strengthen market trust in the long run.
While both perspectives hold merit, it is important to note that most global crypto exchanges already follow stricter regulations, such as those in Singapore or Japan. For them, adapting to India’s measures will be a relatively straightforward process.
Guidelines for Exchanges to Adapt
Adapting to the new rules will require time and effort on the part of crypto exchanges. Experts recommend taking a proactive stance and conducting internal audits before the official ones. This approach makes sense, as it can detect problem areas before they escalate. By conducting internal audits, exchanges can address weaknesses before officials impose more severe measures.
Another compliance issue is security. With the new regulations, robust security measures are no longer optional. All exchanges must implement features such as cold wallets, hardware security modules, and multi-factor authentication procedures. At the same time, companies will need clear protocols in case a breach occurs, outlining their response.
Conclusion
The latest regulatory push from the Indian government can be seen both as an opportunity and a challenge. Designed primarily as a defensive measure aimed at strengthening security and combating fraud, it will nonetheless place considerable strain on crypto exchanges and their operations. However, given the size and potential of the Indian crypto market, most exchanges will likely choose to comply in order to remain active in the country.
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