coindcx: CoinDCX restricts crypto withdrawals citing higher compliance requirement

Cryptocurrency exchange CoinDCX had paused its crypto withdrawal facility without prior communication, sparking concerns among users.

The recent liquidity crises at several institutions, including Celsius Network, which paused crypto withdrawals and transfers, has stirred fear among Indian retail,
ET reported on June 21.

In this backdrop, CoinDCX’s decision to restrict crypto withdrawals have caused a furore on social media.

“The restriction is an enhanced measure to strengthen our safety protocols and was gradually initiated over the past one month for multiple users,” a spokesperson for CoinDCX said in a statement. “This measure involves a series of steps such as improving know your customer (KYC) coverage, enhancing the risk framework for crypto deposit and withdrawal, and integrating with compliance and monitoring tools.”

After the issue gained traction on microblogging platform Twitter, CoinDCX’s head of marketing, Ramalingam S., wrote on June 20 that “while some wallets are under maintenance there is a larger compliance requirement due to evolving regulatory needs resulting in increased scrutiny. The new process is being rolled out in phases, and it will reach all users in due course.”

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This company followed this up with a blog post on the same day , informing users that the exchange would release a policy in the next 14 days.

Users say CoinDCX stopped crypto withdrawals abruptly sometime in May, without a compelling reason. It initially said the pause was due to “ an ongoing wallet maintenance service”.

“They should have informed the user that they won’t be able to withdraw funds after this date,” said Vaibhav Gupta, a trader on CoinDCX. “You have to give that window.”

Retail investors say CoinDCX’s decision to abruptly pause crypto withdrawals and only allow rupee withdrawals in a bear market prevented them from cutting their losses and moving their crypto assets to other platforms that may offer better selling prices.

Major cryptos have
lost over 70% of their value from all-time highs due to high inflation, rising interest rates, the Ukraine-Russia conflict and fears of a looming recession.

Retail investors may not have any legal recourse either.

Legal experts say that they can only initiate a dispute as per the dispute resolution mechanism if the restriction is in violation of the agreed terms with the exchange.

“In the absence of a clear regulatory framework, crypto exchanges are free to structure the withdrawals as they feel is fair and efficient. However, if the clause is unfair – the law would hesitate to enforce it. This is a litigator’s nightmare – because fair and unfair are ambiguous terms,” said Mathew Chacko, partner, Spice Route Legal.

Crypto trading platform CoinSwitch Kuber had also paused its crypto withdrawal facility last year citing “deliberations around the provisions of the Foreign Exchange Management Act (FEMA) and all other applicable laws.”

“The Reserve Bank of India has always been concerned with the unregulated proliferation of crypto exchanges and investors in India,” said Anupam Shukla, partner, Pioneer Legal.

While crypto exchanges merely act as intermediaries and technology platforms, and may themselves not violate the provisions of FEMA, the transactions that they facilitate, especially to foreign wallets, may be of concern to RBI from a FEMA perspective, Shukla said.

“A lack of KYC and anti-money laundering norms for crypto transactions also needs to be reconciled with India’s exchange control laws,” Shukla added.

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