The Parliamentary Standing Committee on Finance has sought a “comprehensive examination” and an “appropriate regulatory framework” for Virtual Digital Assets (VDAs) like cryptocurrencies, in its report on the Securities Market Code (SMC), the Indian Express reported.
The committee has proposed that, until such a legislative framework takes shape, the government may look at an interim arrangement run through recognised Self-Regulatory Organisations (SROs) functioning under the designated regulator’s watch.
Flagging an “existing regulatory vacuum” in how VDAs are governed, the panel said risks must be contained, investor interests shielded and market discipline upheld while the framework is drawn up.
“Such a framework should prescribe minimum standards of governance, transparency, disclosure, investor protection, grievance redressal, compliance with prescribed codes of conduct and appropriate regulatory oversight,” it said.
Citing figures from blockchain analytics company Chainalysis, the report noted that nearly 12 crore Indians take part in the VDA ecosystem. The committee also went into why VDAs are set to be excluded under the proposed changes to the Securities Markets Code, explaining that the Code uses a “technology-neutral” definition of securities and that VDAs do not fulfil the legal characteristics of securities and derivatives under the framework.
A separate framework was thus needed, the panel said, since such exclusion would amount to a “regulatory grey area.” It cautioned that this “would result in regulatory uncertainty, exposing investors to heightened risks of fraud, market manipulation, misrepresentation and inadequate grievance redressal, while also creating opportunities for regulatory arbitrage.”
While India lacks a legal regime for VDAs, the sector is already regulated for anti-money laundering and taxation.
Conveying the Centre’s stand, the committee said there was an admission that VDAs and crypto assets stay unregulated except for taxation, money-laundering prevention and reporting, and that any framework would call for “significant international and domestic coordination.”
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