Sebi said crypto assets backed by fiat currencies could be regulated by the RBI. (Photo: Bloomberg)
India's market watchdog has recommended that several regulators supervise cryptocurrency trading, documents show, the strongest signal yet that at least some authorities in the country are open to allowing the use of private virtual assets .
The Securities and Exchange Board of India's (Sebi) position contrasts with that of the Reserve Bank of India (RBI), which maintains that private digital currencies pose a macroeconomic risk, separate documents show.
Both sets of documents, which have been seen by Reuters, have been submitted to a government panel tasked with formulating policies for the Finance Ministry to consider. Sebi's stance has not been previously reported.
India has taken a tough stance against cryptocurrencies since 2018, when the central bank banned lenders and other financial intermediaries from dealing with cryptocurrency users or exchanges, although the move was later overturned by the Supreme Court.
In 2021, the government prepared a bill that would have banned private cryptocurrencies, although it was not introduced. Last year, when it was president of the G20, India called for a global framework to regulate such assets.
The RBI remains in favor of banning stablecoins, according to a person with direct knowledge of the panel's discussions.
The person, who was not authorized to speak to the media and asked not to be identified, added that the panel plans to confirm its report as early as June.
Stablecoins are cryptocurrencies designed to maintain a constant exchange rate with fiat currencies so that they are less vulnerable to wild volatility.
However, in its submissions to the government panel, Sebi recommended that different regulators should supervise activities linked to cryptocurrencies that fall under their domain and that a single unified regulator for digital assets should be avoided.
Sebi said it could monitor cryptocurrencies that take the form of securities, as well as new offerings called Initial Coin Offerings (ICOs). She could also issue licenses for stock market-related products, the person familiar with the panel's discussions said.
This would be similar to what happens in the US, where tokens that are in the nature of securities and cryptocurrency exchanges fall under the purview of the Securities and Exchange Commission.
Cryptoassets backed by fiat currencies could be regulated by the Reserve Bank of India, he claimed.
The Insurance Regulatory and Development Authority of India (IRDAI) and the Pension Fund Regulatory and Development Authority (PFRDA) should regulate insurance and pension-related virtual assets, documents show.
It also recommended that complaints from investors dealing in cryptocurrencies be resolved under the Indian Consumer Protection Act.
Sebi and the RBI did not respond to requests for comment.
The Finance Ministry, IRDAI and PFRDA also did not respond to requests for comment.
Fiscal policy risks
In its submissions, the RBI said that cryptocurrencies could lead to tax evasion and that decentralized peer-to-peer (P2P) activities in cryptocurrencies would depend on voluntary compliance, posing risks to fiscal stability.
He also said that cryptocurrencies can lead to loss of income from "seigniorage," which is the profit made by a central bank from the creation of money.
After the RBI's 2018 orders were challenged by the industry and struck down by the Supreme Court, the central bank asked financial institutions to strictly comply with strict norms on money laundering and foreign exchange, effectively keeping cryptocurrencies out. of India's formal financial system.
Still, the trade flourished and in 2022 the government introduced a tax on crypto transactions in India to discourage such trading. It continued to ask all exchanges to register locally before facilitating crypto transactions from within the country.
According to a PwC report from December, 31 countries have regulations that allow cryptocurrency trading.
First published: May 16, 2024 | 15:27 IS
