India’s Financial Intelligence Unit (FIU) has ordered at least three major crypto exchanges to hand over records of over-the-counter (OTC) crypto trades worth more than $10,000, The Economic Times reports. The directive, issued after a late-May meeting, requires exchanges to trace and preserve these OTC transaction records from January 2026 onward.
Why OTC trades matter
OTC trades let large buyers execute big orders outside public order books to avoid sharp price moves. But that opacity makes it harder for platforms and regulators to verify who ultimately owns the assets or where funds originate — especially when private companies, trusts, intermediaries or brokers sit between the exchange and the true counterparty.
Regulatory concerns and practical challenges
FIU officials and industry sources point to persistent KYC gaps in the OTC space. “OTC players are primarily private companies where the KYC procedure can be a greater challenge compared to retail investors,” a crypto intermediary told The Economic Times. When clients are corporate entities, exchanges must identify directors, controllers and ultimate beneficial owners — a process that can be time-consuming and vulnerable to false documents or mule accounts. OTC clients also often request rapid withdrawals to private wallets after settlement, reducing an exchange’s ability to monitor downstream movements.
How this fits into India’s broader AML push
The OTC push builds on FIU guidance issued in January that tightened user onboarding and monitoring: exchanges were asked to implement live selfie checks, geolocation and IP tracking and to refresh customer records every six or 12 months based on risk. India has already shown it will enforce these rules — for example, Binance paid a $2.25 million penalty in India for AML-related violations, and the government has issued notices to offshore virtual asset service providers operating without FIU registration.
Legal framework and expected changes for exchanges
India’s Finance Ministry has affirmed that virtual digital asset service providers fall under the Prevention of Money Laundering Act (PMLA) framework. That means exchanges must keep records, file suspicious transaction reports and comply with FIU-IND reporting obligations when serving Indian users.
For exchanges and OTC desks, the FIU request likely means more stringent pre- and post-settlement checks: collecting enhanced documentation on beneficial owners, transaction purpose, source of funds and destination wallets. For large clients — private companies and intermediaries in particular — expect slower, more document-heavy onboarding and transaction processes.
Bottom line
The FIU’s focus on OTC trades signals that Indian regulators are widening their view beyond public order books to the private channels where large crypto flows occur. That shift could increase compliance burdens for OTC desks and institutional clients while tightening the oversight of large off-exchange transactions that previously operated with less scrutiny.
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