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Nepal

Retail_Trading_Status

Banned Unknown
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Analysis ID
#174
Version
Archived
Created
2025-04-12 06:54
Workflow Stage
Live

Executive Summary

Nepal prohibits all activities related to cryptocurrencies, enforced by the Nepal Rastra Bank (NRB). The NRB cites the Foreign Exchange (Regulation) Act as the basis for the ban, motivated by concerns over capital flight and financial stability. No KYC/AML requirements are imposed on platforms due to the blanket prohibition. Despite the ban, some activity persists through unofficial channels, while the country explores a Central Bank Digital Currency (CBDC).

Key Pillars

The primary regulator is the Nepal Rastra Bank (NRB), which enforces a complete ban on cryptocurrency activities. The core compliance requirement is the avoidance of any cryptocurrency-related transaction to prevent penalties under the Foreign Exchange (Regulation) Act. There are no licensing or registration requirements for cryptocurrency exchanges or services because the activity is illegal.

Landmark Laws

• Foreign Exchange (Regulation) Act, 2019 B.S. (1962 A.D.): Serves as the basis for the ban on cryptocurrency, enabling NRB to declare Bitcoin and other virtual currencies unlawful.
• NRB Notice (August 13, 2017): First explicit declaration making Bitcoin transactions illegal.
• NRB Notice (January 23, 2022): Declared all activities related to virtual currencies and cryptocurrencies illegal.
• Nepal Telecommunications Authority (NTA) Notice (January 8, 2023): Ordered ISPs to block access to crypto-related websites and applications.

Considerations

Cryptocurrencies are not legally classified as assets or property, but rather as prohibited items. There is no tax treatment defined due to the ban. Regulators have raised concerns about capital flight, negative impacts on remittances, challenges to managing foreign exchange reserves, overall economic and financial stability risks, difficulties in implementing monetary policy, and risks associated with fraud, tax evasion, money laundering, and terrorist financing. Operational challenges include circumvention of the ban through unofficial channels and potential underreporting of crypto-related fraud due to fear of penalties.

Notes

Nepal Rastra Bank banned Bitcoin through a notice dated August 13, 2017. A subsequent notice on January 23, 2022, declared all activities related to virtual currencies and cryptocurrencies illegal. The Foreign Exchange (Regulation) Act 2019 serves as the basis for the ban. Nepal is exploring the possibility of a Central Bank Digital Currency (CBDC) with feasibility studies underway. Despite the ban, some level of cryptocurrency activity persists through unofficial channels or foreign platforms. Victims of crypto-related fraud may not report incidents due to fear of repercussions.

Detailed Explanation

Nepal has a strict ban on all cryptocurrency-related activities, including buying, selling, holding, mining, using as payment, and promotion. This ban is enforced by Nepal Rastra Bank (NRB), the central bank, under the Foreign Exchange (Regulation) Act, 2019 B.S. (1962 A.D.). The NRB initially declared Bitcoin transactions illegal on August 13, 2017, and extended the prohibition to all virtual currencies and cryptocurrencies on January 23, 2022. The NRB's concerns include capital flight, negative impacts on remittances, challenges to foreign exchange reserve management, economic and financial stability risks, monetary policy implementation difficulties, and fraud, tax evasion, money laundering, and terrorist financing risks. There's no regulatory framework for cryptocurrency exchanges, and therefore, no KYC/AML requirements imposed because the underlying activity is illegal. The Nepal Police's Central Investigation Bureau (CIB) has made arrests concerning illegal Bitcoin exchange operations. The Nepal Telecommunications Authority (NTA), acting on NRB and Ministry directives, has ordered ISPs to block websites, applications, and online networks associated with cryptocurrencies. Despite the ban, some cryptocurrency activity occurs through unofficial channels or foreign platforms. Engaging in cryptocurrency transactions carries penalties under the Foreign Exchange (Regulation) Act and potentially the Electronic Transaction Act, with fines up to three times the amount involved and imprisonment for larger amounts. Victims of crypto-related fraud are discouraged from reporting due to fear of repercussions. While decentralized cryptocurrencies are banned, Nepal is exploring a Central Bank Digital Currency (CBDC), with feasibility studies and a dedicated division within the NRB.

Summary Points

Here's the converted report in a clear, bullet-point format:

Retail Cryptocurrency Trading Status in Nepal: Regulatory Analysis

I. Regulatory Status:

  • Banned: Retail cryptocurrency trading (buying, selling, holding, mining, using as payment, promoting) is illegal for citizens and residents of Nepal.

II. Key Regulatory Bodies and Roles:

  • Nepal Rastra Bank (NRB):
    • Central bank responsible for enforcing the ban.
    • Issues notices declaring cryptocurrency activities illegal.
    • Cites concerns about capital flight, remittance impacts, foreign exchange management, financial stability, monetary policy implementation, fraud, tax evasion, money laundering, and terrorist financing.
    • Exploring the possibility of a Central Bank Digital Currency (CBDC).
  • Nepal Police's Central Investigation Bureau (CIB):
    • Enforces the ban through arrests related to illegal cryptocurrency exchange operations.
  • Nepal Telecommunications Authority (NTA):
    • Orders Internet Service Providers (ISPs) to block access to cryptocurrency-related websites, applications, and online networks.
    • Acts on directives from the NRB and the Ministry of Communication and Information Technology.

III. Important Legislation and Regulations:

  • Foreign Exchange (Regulation) Act, 2019 B.S. (1962 A.D.):
    • The primary legal basis for the cryptocurrency ban.
    • Section 12 is specifically cited by the NRB.
  • Electronic Transaction Act:
    • Potentially applicable for certain cryptocurrency-related offenses.

IV. Requirements for Compliance:

  • No Compliance Requirements: Since cryptocurrency activities are illegal, there are no KYC/AML or other compliance requirements for platforms or individuals.

V. Notable Restrictions and Limitations:

  • Complete Prohibition: All activities related to cryptocurrencies are prohibited.
  • Website Blocking: ISPs are required to block access to cryptocurrency-related websites and applications.
  • Enforcement Challenges: Despite the ban, some cryptocurrency activity persists through unofficial channels and foreign platforms.
  • Victim Disincentive: Victims of crypto-related fraud are discouraged from reporting incidents due to fear of repercussions.

VI. Penalties for Non-Compliance:

  • Fines: Up to three times the amount involved in the illegal transaction.
  • Imprisonment: Possible imprisonment, especially for larger transaction amounts (e.g., exceeding ten million rupees), for a term not exceeding three years.
  • Forfeiture: Foreign exchange related to the offense shall be forfeited.

VII. Recent Developments and Changes:

  • August 13, 2017: NRB first declared Bitcoin transactions illegal.
  • January 23, 2022: NRB reiterated and expanded the ban to include all activities related to virtual currencies and cryptocurrencies.
  • January 2023: NTA ordered ISPs to block access to crypto-related websites.
  • Ongoing: NRB is exploring the possibility of a Central Bank Digital Currency (CBDC).
  • April 2024: FIU Newsletter confirms the ban.
  • March 2025: The Foreign Exchange (Regulation) Act 2019 serves as the basis for the ban on cryptocurrency in Nepal.

Full Analysis Report

Okay, here is the comprehensive report on the status of retail cryptocurrency trading in Nepal, formatted as requested.

Financial Regulatory Analyst Report: Nepal

Topic: Retail_Trading_Status
Description: Assess whether individual citizens and residents in the country are legally permitted to buy, sell, and hold cryptocurrencies. Detail the regulatory environment surrounding this activity (e.g., KYC/AML requirements imposed on platforms, general warnings issued).

1. Current Status: Banned

2. Narrative Explanation:

Nepal maintains a strict prohibition on all activities related to cryptocurrencies and virtual currencies for its citizens and residents. This includes buying, selling, holding, mining, using as payment, and promoting such assets. The ban is enforced by Nepal Rastra Bank (NRB), the country's central bank, primarily based on the Foreign Exchange (Regulation) Act, 2019 B.S. (1962 A.D.).

The NRB first issued a notice explicitly declaring Bitcoin transactions illegal on August 13, 2017. This stance was reiterated and expanded in subsequent notices, notably on January 23, 2022, which declared all activities related to virtual currencies and cryptocurrencies illegal. The NRB cites several reasons for the ban, including concerns about capital flight, potential negative impacts on remittance inflows, challenges to managing foreign exchange reserves, risks to overall economic and financial stability, difficulties in implementing monetary policy, and risks associated with fraud, tax evasion, money laundering, and terrorist financing.

There is no specific regulatory framework in Nepal for legalizing or overseeing cryptocurrency exchanges or related services. Consequently, no KYC/AML requirements are imposed on platforms because the activity itself is prohibited.

Enforcement actions have been taken against individuals involved in cryptocurrency trading. The Nepal Police's Central Investigation Bureau (CIB) has made arrests related to illegal Bitcoin exchange operations. Furthermore, acting on the directives of the NRB and the Ministry of Communication and Information Technology, the Nepal Telecommunications Authority (NTA) has ordered Internet Service Providers (ISPs) to block websites, applications, and online networks related to cryptocurrency trading, mining, and other associated activities.

Despite the ban, reports suggest that some level of cryptocurrency activity persists through unofficial channels or foreign platforms, creating enforcement challenges. However, the official legal position remains unambiguous: engaging in any cryptocurrency transaction or related activity within Nepal is illegal and subject to penalties under the Foreign Exchange (Regulation) Act and potentially other laws like the Electronic Transaction Act. Penalties can include hefty fines (up to three times the amount involved) and imprisonment, especially for larger transaction amounts. The ban also discourages victims of crypto-related fraud from reporting incidents due to fear of repercussions.

While Nepal has banned decentralized cryptocurrencies, it is exploring the possibility of a Central Bank Digital Currency (CBDC), with feasibility studies underway and a dedicated CBDC division established within the NRB.

3. Supporting Excerpts:

  • Source: Imperial Law Associates

    • Excerpt: "Nepal Rastra Bank (“NRB”), the Central Bank of Nepal banned bitcoin through a notice dated 13 August 2017 pursuant to Section 12 of the Foreign Exchange (Regulation) Act, 1962 and Nepal Rastra Bank Act, 2002. NRB has not recognized bitcoins as a legal currency in Nepal and declared that any kind of transactions of bitcoin is illegal in Nepal. Similarly, NRB, declared that all kinds of activities related to Virtual Currency and Cryptocurrency are illegal in Nepal through a notice dated 23 January 2022."
    • Excerpt: "Engaging in cryptocurrency transactions is illegal in Nepal. The foreign exchange related with the offence shall be forfeited and the person involved in such offence shall be fined additionally from the amount in question to three fold of such amount in question. If the amount in question involved in the offence is ten million rupees or more, the concerned person shall be liable to an additional punishment of imprisonment for a term not exceeding three years..."

  • Source: Nepal Rastra Bank (via Nepal News report on Cryptocurrency Risk Assessment Report, April 2023)

    • Excerpt: "Cryptocurrency transactions are banned by the existing laws of Nepal. 'It entails risks as investment in cryptocurrency results in capital flight since the investment is in foreign land, it might have adverse impact on remittance flow and create challenges in managing the foreign exchange reserves,' reads the Report. It states that prohibition on cryptocurrency is necessary as it has risks including destabilizing the overall economic balance, risk on financial stability, risk in terms of implementing the monetary policy and risks of fraud and tax evasion, among others."
    • Excerpt: "The Central Bank has imposed a ban on cryptocurrency as per the provision of Clause 12 of the Foreign Exchange (Regulation) Act, 2019 BS."

  • Source: India Today (reporting on NTA notice, January 2023)

    • Excerpt: "In a notice published on 8 January, the Nepal Telecommunication Authority ordered all ISPs and email services to ensure that users are not able to get access to 'websites, apps or online networks' related to crypto or its trading. The telco has also threatened legal action against anyone flouting this order."

  • Source: Mitrade / Bitcoinist.com (reporting on FIU Strategic Analysis Report 2024, November 2024)

    • Excerpt: "Nepal banned digital asset trading and mining in September 2021. Subsequently, in January 2023, the Nepalese Telecommunications Authority ordered internet service providers (ISPs) to block access to all crypto-related websites, including trading platforms."
    • Excerpt: "In countries like Nepal where investment in virtual assets like cryptocurrency is illegal, the victims rarely come up with complaints against such scams for potential repercussions."

  • Source: Mero Mudda (March 2025)

    • Excerpt: "The Foreign Exchange (Regulation) Act 2019 serves as the basis for the ban on cryptocurrency in Nepal. The Nepal Rastra Bank, citing this Act, has attempted to outlaw Bitcoin and other virtual currencies... As of 2023, the Nepalese government has yet to establish a regulatory framework for legalizing cryptocurrencies. The Nepal Rastra Bank issued an official notice banning Bitcoin and other cryptocurrencies, declaring them unlawful."

4. Source Links:

(End of Report)

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