India strengthens cybersecurity, crypto regulations to combat rising threats: FATF Report

FATF Mutual Evaluation Report: India is enhancing its defenses against cybercrime and regulating virtual assets following FATF recommendations. Initiatives include the Indian Cybercrime Coordination Centre’s advanced tools and VASPs’ compliance with anti-money laundering laws, addressing cybersecurity challenges and promoting international cooperation against financial crimes.

India, in a move to bolster its defences against cybercrime and enhance the regulation of virtual assets, has implemented several measures outlined in a recent report by the Financial Action Task Force (FATF).

The report highlights the growing challenges posed by cyber-enabled fraud and the complexities surrounding cryptocurrency, emphasising the need for robust cybersecurity frameworks and stringent compliance for Virtual Asset Service Providers (VASPs).

Cybersecurity Initiatives

The Indian Cybercrime Coordination Centre (I4C), established in 2020, is at the forefront of this initiative, developing advanced forensic and technological tools to support law enforcement agencies (LEAs). The I4C aims to produce comprehensive cybercrime threat intelligence reports and facilitate the reporting of cyber incidents, employing cutting-edge digital technologies for forensic analysis.

Financial institutions nationwide are upgrading their cybersecurity measures, leveraging technologies such as geofencing, machine learning models, and scoring algorithms to monitor and mitigate potential risks.

India’s cybersecurity watchdog, the Computer Emergency Response Team (CERT-IN), plays a crucial role in responding to cybersecurity incidents and enhancing the security of India’s communication and information infrastructure.

Regulating Cryptocurrency

In parallel with these cybersecurity efforts, the regulation of virtual assets has gained momentum. VASPs were officially recognised as reporting entities under the Prevention of Money-Laundering Act (PMLA) in February 2023. The Financial Intelligence Unit of India (FIU-IND) issued detailed guidance in March 2023, followed by the development of Red Flag Indicators for VASPs in April 2023.

These providers are now mandated to register and comply with anti-money laundering (AML) and counter-terrorist financing (CFT) obligations, which include rigorous customer due diligence (CDD) and the reporting of suspicious transactions. Additionally, VASPs are implementing technological solutions to adhere to the “travel rule,” which necessitates sharing information regarding the originator and beneficiary of virtual asset transfers.

VASPs face significant challenges despite these advancements, including counterparty identification issues, interoperability between travel rule providers, and varying data protection laws. Enhanced controls, such as video KYC processes and rigorous transaction monitoring, are being adopted to address these challenges, particularly for high-risk clients.

Risks and International Cooperation

The report also sheds light on the risks associated with virtual assets, including anonymity, compliance weaknesses, and the rising prevalence of scams and ransomware. Alarmingly, there has been an increase in cases where virtual assets are linked to the financing of terrorism.

Recognising the global nature of these threats, the document stresses the importance of international cooperation in combating money laundering and terrorist financing (ML/TF) related to virtual assets. India is positioned to exchange critical information with foreign counterparts through various channels, including the Egmont Group and other international networks.

As India continues to navigate the complexities of cybersecurity and cryptocurrency regulation, these measures are vital for safeguarding the integrity of its financial system and ensuring compliance with international standards.

Also read: FATF India Mutual Evaluation Report | Why this marks the successful completion of a long journey

By September 19, 2024Regulations