Indian Crypto Exchanges Tapping Offshore Bourses for Futures Trade, Facing Regulatory Challenges

Offshore Bourses Supporting Indian Crypto Futures Trade

Utilizing Liquidity from Overseas Exchanges

Indian cryptocurrency exchanges are leveraging offshore bourses like Binance for futures trading, which offers high leverage compared to equity futures. These exchanges are striking deals with foreign platforms to facilitate these trades, drawing comfort from the FIU registration of these exchanges.

Regulatory & Tax Compliance Challenges

Derivative Transactions and FEMA Regulations

Exchanges are operating derivative transactions without remitting funds to overseas exchanges, using USDT as margin instead. While they believe they are compliant as long as the foreign exchanges are FIU-registered, experts caution about potential FEMA violation risks.

False Declarations and LRS Misuse

Certain high net-worth individuals have allegedly misdeclared their foreign crypto holdings as ‘security’ investments to banks, bypassing restrictions on cryptocurrency trading. Some have used Liberalized Remittance Scheme (LRS) to transfer funds to relatives for opening accounts on overseas exchanges.

LRS Monitoring and Compliance

Under LRS, individuals can remit up to $250,000 abroad annually for investments; however, there are monitoring challenges. While some invest in crypto-linked ETFs within LRS limits, misrepresenting crypto investments as securities in LRS declarations could lead to violations.

This news highlights the complex landscape of crypto trading in India, with exchanges navigating regulatory uncertainties and individuals adopting creative approaches to access offshore markets, raising concerns about compliance and misuse of financial mechanisms.