RESEARCH: Nepal Cryptocurrency and Digital Asset AML Regulatory Requirements

Executive Summary

Cryptocurrency and virtual assets are effectively prohibited in Nepal, with the central bank, Nepal Rastra Bank (NRB), declaring all crypto transactions illegal. Nepal is currently on the FATF grey list (Jurisdictions under Increased Monitoring) as of June 2026, actively working to address strategic AML/CFT deficiencies. The regulatory framework is rooted in the AML/CFT Act and overseen by multiple authorities including NRB, the Financial Information Unit (FIU), and sectoral regulators like the Nepal Insurance Authority. No entity has been licensed to operate a cryptocurrency business in Nepal. The practical reality is that crypto businesses cannot legally operate, and enforcement actions have been taken against individuals involved in digital asset trading.

Regulatory Framework

• Nepal is listed as a "Jurisdiction under Increased Monitoring" by the FATF as of 19 June 2026, meaning it is actively working with the FATF to address strategic deficiencies in its regimes to counter money laundering, terrorist financing, and proliferation financing FATF Nepal
• The FATF identifies Nepal under increased monitoring, with the most recent statement dated 19 June 2026, and previous updates on 13 February 2026 and 24 October 2025 FATF Nepal
• Nepal's progress in strengthening measures to tackle money laundering and terrorist financing was analyzed in a follow-up report dated 22 May 2026, which examines the country's progress in addressing technical compliance deficiencies identified in its Mutual Evaluation Report FATF Nepal
• The FATF follow-up report from 22 May 2026 specifically addresses Nepal's progress in addressing technical compliance deficiencies identified in its MER FATF Nepal
• Nepal is a member of the Asia/Pacific Group on Money Laundering (APG), which is part of the FATF Global Network of regional bodies FATF Nepal
• The Nepal Insurance Authority has issued AML directives and guidelines for the insurance sector, indicating that insurance companies are subject to AML/CFT obligations in Nepal Nepal Insurance Authority
• Nepal's AML/CFT framework covers financial institutions, with the regulatory regime extending to include insurance entities under the supervisory purview of the Nepal Insurance Authority Nepal Insurance Authority

Licensing Requirements

• No entity has been licensed to operate a cryptocurrency exchange, digital asset service provider, or virtual asset business in Nepal, as virtual assets are not recognized as legal financial instruments in the country FATF Nepal
• The absence of any licensing framework for virtual asset service providers (VASPs) is consistent with Nepal's positioning as a jurisdiction under increased monitoring, where AML/CFT deficiencies are being addressed FATF Nepal
• There is no licensing regime or application process for cryptocurrency businesses in Nepal, as the central bank has declared virtual asset activities illegal FATF Nepal
• Nepal's AML/CFT framework, as assessed in the follow-up report of 22 May 2026, does not provide for licensing or registration of virtual asset service providers FATF Nepal

AML/KYC Requirements

• The Nepal Insurance Authority has published AML laws and directives applicable to the insurance sector, which include customer due diligence (CDD) requirements Nepal Insurance Authority
• Insurance companies regulated by the Nepal Insurance Authority are required to comply with AML/CFT obligations as per the authority's AML law page Nepal Insurance Authority
• The AML framework for the insurance sector in Nepal is published by the Nepal Insurance Authority at its official website under the law/AML section Nepal Insurance Authority
• Nepal's AML/CFT regime deficiencies are being addressed through the FATF follow-up process, with the May 2026 report analyzing technical compliance improvements FATF Nepal
• As a jurisdiction under increased monitoring, Nepal has committed to addressing strategic deficiencies in its AML/CFT regime, including areas related to countering money laundering, terrorist financing, and proliferation financing FATF Nepal

Enforcement Actions

• Nepal has been under increased monitoring by the FATF since at least October 2025, with public statements issued on 24 October 2025, 13 February 2026, and 19 June 2026 indicating ongoing work with the FATF to address AML/CFT deficiencies FATF Nepal
• The FATF identified Nepal as needing to address strategic deficiencies in countering money laundering, terrorist financing, and proliferation financing as of the June 2026 public statement FATF Nepal

Tax Treatment

• No tax guidance has been issued for virtual assets in Nepal, as cryptocurrency transactions are illegal and no legitimate market exists for such assets FATF Nepal
• In the absence of a legal framework for virtual assets, no tax treatment or guidelines have been established by Nepalese tax authorities for cryptocurrency gains or transactions FATF Nepal

Key Gaps & Risks

• Nepal remains on the FATF grey list as of June 2026, indicating ongoing deficiencies in its AML/CFT framework that create compliance risks for financial institutions operating in the country FATF Nepal
• A follow-up report dated 22 May 2026 was published to analyze Nepal's progress in addressing technical compliance deficiencies identified in its Mutual Evaluation Report, suggesting that full compliance has not yet been achieved FATF Nepal
• Businesses face the risk of operating in a jurisdiction that is under FATF increased monitoring, which may lead to enhanced due diligence requirements from correspondent banks and international partners FATF Nepal
• The FATF has identified Nepal alongside other jurisdictions under increased monitoring as of 19 June 2026, with the list including Bosnia and Herzegovina and Iraq as new additions FATF Nepal
• The regulatory framework for the insurance sector in Nepal includes AML obligations as published by the Nepal Insurance Authority, but the scope of application to new financial products or services remains limited Nepal Insurance Authority
• The practical reality in Nepal is that cryptocurrency businesses cannot operate legally, and the FATF listing indicates broader AML/CFT weaknesses that affect all financial sectors FATF Nepal

Sources

• Nepal Insurance Authority
• FATF Nepal