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India Security Regulator Disagrees with Central Bank, Crypto Association Cheers Proposal

Last Updated May 17, 2024 2:04 PM
Shraddha Sharma
Last Updated May 17, 2024 2:04 PM

Key Takeaways

  • SEBI suggests multiple regulators oversee cryptocurrency trading, contrasting with the RBI’s stance on a ban.
  • The RBI warns that cryptocurrencies could lead to tax evasion and pose fiscal stability risks.
  • Despite the Supreme Court overturning the 2018 crypto ban, crypto players have been waiting for specific legislation. 

India’s securities watchdog, the Securities and Exchange Board of India (SEBIhas set a positive tone for the domestic crypto sector by stating a single regulator should not oversee the asset class. This comes in contrast to the RBI stance that supports a complete ban on the sector

A recent Reuters report indicates that SEBI is potentially the only local authority not opposing the trade of private virtual assets. Dilip Chenoy, Chairman of India’s crypto body Bharat Web3 Association, views this as the first step toward creating domestic legislation for the sector.

India’s SEBI Wants Multiple Crypto Supervisors

India’s securities watchdog, the Securities and Exchange Board of India (SEBI), has suggested that multiple regulators should oversee cryptocurrency trading.

A recent report by Reuters indicates  that SEBI is potentially the only local authority that doesn’t oppose the idea of allowing the trade of private virtual assets.

Dilip Chenoy, Chairman of India’s crypto body Bharat Web3 Association, told CCN, “This development marks a significant first step toward creating domestic legislation for the sector.”

Chenoy also revealed that the government previously sought input industry feedback to shape its regulations, and the association is now drafting a comprehensive document to support this effort. 

He said, “Our goal is to represent Web3 interests across India, involving both members and non-members in these discussions. We anticipate significant opportunities to share our perspectives. For new and emerging technologies such as Web3, a cooperative approach between the public and private sectors would be beneficial.”

According to documents cited by Reuters, SEBI’s suggestion contrasts with the idea of having a single unified regulator for digital assets. 

SEBI Would See Crypto Dubbed “Securities”

SEBI also proposes that it could regulate cryptocurrencies that function as securities and new offerings like Initial Coin Offerings (ICOs). However, which cryptos would be dubbed securities could become a matter of contention. 

It also reportedly suggested issuing licenses for equity market-related crypto products, similar to how the US Securities and Exchange Commission (SEC) oversees tokens and crypto exchanges. 

Additionally, the Insurance Regulatory and Development Authority of India (IRDAI) and the Pension Fund Regulatory and Development Authority (PFRDA) can potentially regulate virtual assets related to insurance and pensions, as per the documents. 

To protect investors, SEBI also advised that issues faced by those trading in cryptocurrencies should be addressed under India’s Consumer Protection Act.

Chenoy states, “The proposal to form an inter-ministerial body to manage Virtual Digital Assets (VDAs) aligns well with the industry’s aspirations, given the diverse applications of these assets.”

SEBI’s stance is different from that of the Reserve Bank of India (RBI), which has been pushing for a crypto ban. 

RBI Raises Risk Concerns

The central bank has constantly stated that crypto can bring financial instability and open channels for money laundering and scams. The Indian government has not gone ahead with a unilateral ban. 

Nonetheless, the RBI has reportedly expressed concerns. In its submissions, RBI notes that cryptocurrencies could lead to tax evasion.

The report underlines that RBI sees decentralized peer-to-peer (P2P) activities demand voluntary compliance, posing risks to fiscal stability. 

The RBI also warned that cryptocurrencies might cause a loss of “seigniorage” income, which is the profit a central bank earns from creating money.

An RBI circular previously banned crypto in 2018. In 2020, the order was challenged in India’s highest court and the Supreme Court overturned the ban. However, private crypto has not gained formal recognition in the domestic financial sector despite being a taxable asset. 

If India decides to regulate crypto as a separate asset class, it will join other Asian countries like Hong Kong and Singapore in allowing its legal trade. Given the size of the Indian market, this move would be a positive addition to crypto.

India Can Regulate Crypto

SEBI’s proposal to involve multiple regulators in overseeing cryptocurrency trading marks a progressive step in India. Especially when the domestic players have been in want of a more structured and regulated crypto market in India. 

In contrast, the Reserve Bank of India (RBI) remains wary, citing risks like tax evasion and financial instability.

The stance of the Indian government is still evolving with different agencies joining the discussion. If India goes for a balanced approach that considers both innovation and risk management, the crypto market in Asia will benefit.

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