with two options either agreeing to this and risk losing customer or losing the authority to run in that country.
It is a tough one for sure.
None of these are going to happen. It's not easy to pick a fight against a government agency so exchanges will just agree with them and will handover what they will ask from them. Users also have no option but to hand over their KYC because they can not exchange their coins whenever they need to.
The only possible way I see is more adoption of crypto. Think about a village where everyone is into bitcoin and other cryptocurrency. If they want need an alt for their btc then they can call someone who lives few blocks away from their home and can exchange it, if anyone needs to buy their groceries they can pay using crypto, they can pay tax using crypto, rent using crypto, they can use crypto in their everyday life. Things will be much more easier.