India’s Financial Intelligence Unit (FIU) has introduced tougher rules for cryptocurrency exchanges to crack down on illegal activities such as money laundering and terror financing, making it harder to open and operate crypto accounts anonymously.

Under the new guidelines issued on 8 January, crypto platforms will now have to carry out stricter identity checks when users sign up. Instead of just uploading documents, users will be asked to take a live selfie that proves they are physically present, often by blinking or moving their head. Exchanges will also record where and when an account is created, including location details and IP address.

To verify bank accounts, exchanges must carry out a Re 1 “penny-drop” transaction. Users will need to submit their PAN along with another identity document such as Aadhaar, Passport or Voter ID, and verify their email and mobile number through one-time passwords.

The FIU, which functions under the Union Finance Ministry, said the steps are meant to prevent misuse of crypto assets. It has also warned against Initial Coin Offerings (ICOs) and Initial Token Offerings (ITOs), saying they pose high risks and often lack clear economic purpose.

Crypto exchanges will be required to update details of high-risk users every six months and others once a year. Extra checks will apply to politically exposed persons, non-profit organisations and users linked to tax havens or countries flagged by global watchdogs.

The new rules also bar platforms from supporting tools such as crypto mixers or tumblers, which hide the source of transactions. Exchanges must keep customer and transaction records for at least five years.

While cryptocurrencies are not legal tender in India, they are taxed, and all exchanges must register with the FIU and report suspicious activity under the country’s money laundering law.