India’s crypto OTC crackdown signals tightening global grip on shadow trades

India’s Financial Intelligence Unit has asked three major cryptocurrency exchanges to provide information on over-the-counter crypto transactions worth more than $10,000, according to the Economic Times.

The directive places large OTC crypto deals under closer government scrutiny and signals that India wants more visibility into off-exchange transactions, especially where the real owners of the assets may be difficult to identify.

The request was sent after a meeting in late May and focuses on transactions involving closely held firms, privately held companies, and other entities where beneficial ownership can be harder to verify. Unlike regular exchange-based trades, OTC crypto transactions are negotiated directly between a platform and a client, often using the platform’s own capital before a counterparty is found.

OTC trading helps large buyers avoid price swings in the open market, but it also creates opacity. That is why regulators view these channels as higher-risk for money laundering, tax evasion, and cross-border movement of funds.

India puts large OTC crypto trades under scrutiny

The FIU-IND, which operates under India’s Finance Ministry, receives and analyzes reports on suspicious financial transactions. Crypto exchanges registered in India are already required to report suspicious activity, but the latest directive seeks more information on large OTC deals.

According to the Economic Times, exchanges have also been asked to preserve OTC records dating back to January 2026. The FIU can ask for additional information when suspicious transaction reports filed by platforms are incomplete or when investigative agencies need more details.

There are no official figures for the size of India’s OTC crypto market. However, India remains one of the world’s largest crypto adoption markets, which means large fiat-to-crypto transactions are likely to be a major concern for regulators.

Beneficial ownership drives the FIU’s concern

OTC crypto deals are attractive to high-net-worth clients, institutions, and companies because they can move large amounts without directly affecting exchange order books.

They can also be attractive to those trying to move money with less visibility. OTC clients may receive faster service, negotiated pricing, and quicker withdrawal of purchased crypto into private wallets. Once assets leave an exchange, they can be transferred across borders or to other wallets with fewer traditional banking controls.

The main regulatory concern is beneficial ownership. When the buyer is a private company, trust, or intermediary entity, it can be harder to identify who ultimately controls the funds.

“OTC players are primarily private companies where the KYC procedure can be a greater challenge compared to retail investors,” an official at a crypto intermediary told the Economic Times. The official said verifying directors and ultimate beneficial owners can be harder than checking a retail customer’s identity, while fake identification documents remain a persistent risk across both banks and crypto platforms.

Global standard-setting bodies have repeatedly warned that virtual asset service providers need stronger checks for high-risk transfers, especially those involving unhosted wallets, intermediaries, and cross-border movement of funds.

Global regulators tighten crypto reporting rules

India’s move fits into a wider global push to close transparency gaps in crypto markets.

Regulators in several jurisdictions are tightening rules around identity verification, beneficial ownership disclosure, transaction reporting, and stablecoin activity. The aim is to bring crypto platforms closer to the standards already applied in traditional finance.

In the United States, the GENIUS Act created a federal framework for payment stablecoins, including reserve, audit, and disclosure requirements. Lawmakers are also advancing the CLARITY Act, which seeks to define how digital assets should be split between SEC and CFTC oversight depending on whether they are treated as securities or commodities.

Other jurisdictions, including the UK, Singapore, Australia, and the European Union, are also increasing pressure on crypto intermediaries to improve transaction monitoring and customer due diligence.

The trend is clear: regulators are no longer focused only on exchange-based trading. They are also looking at the private channels where large transactions happen away from public order books.

OTC desks face higher compliance pressure

For OTC desks and institutional clients in India, the FIU directive raises the compliance burden.

Exchanges will now need to show that large OTC trades are backed by stronger due diligence, better record-keeping, and clearer identification of the real parties behind each transaction. That includes verifying who controls the funds, where the money came from, and where the crypto is going after the trade.

For the broader crypto industry, the message is also clear. Large off-exchange transactions will not remain outside regulatory attention simply because they do not happen on public order books.

India’s move confirms a wider shift in digital asset regulation. As crypto markets grow, regulators are closing the gap between how traditional finance and crypto markets handle identity checks, ownership disclosure, and transaction reporting.

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