Two people with direct knowledge of the matter said the central government has decided to bring cryptocurrencies under a regulatory framework instead of banning them, to allay fears of China-like crackdown on such assets.
Under the proposed law, the cryptocurrency would be renamed crypto-asset and brought under the regulatory purview of the Securities and Exchange Board of India (SEBI), the people said.
Fears about the ban led to a drop in the value of cryptocurrencies traded on local exchanges. Following a government notification about the introduction of a bill on crypto, bitcoin fell over 13% on Indian exchange site WazirX, while both Shiba Inu and Dogecoin fell over 15%. However, they did recover some of their value.
The government’s plan to control and not ban cryptocurrencies was first reported by television channel NDTV.
“Classifying cryptocurrency as an asset will ensure that there is no overlap between a digital currency launched by the Reserve Bank of India (RBI) and crypto. All crypto exchanges will come under the regulatory purview of SEBI. Any violations may result in monetary penalty 5-20 crores and imprisonment,” said one of the two people cited above.
“The government is going to introduce the bill in the Parliament in the third week of this session. It will be kept separate from the digital fiat bill of RBI,” said another person.
This means that crypto transactions will have to go through SEBI-registered platforms and exchanges.
“A cut-off date will be prescribed to ensure that all existing exchanges are registered with SEBI,” the first person said.
Bringing crypto platforms under SEBI will ensure that only serious players are in the market, thereby boosting the current incidence of crypto platforms and potential scams.
“Regulating a trading platform is an indirect way of regulating a digital instrument. This would replace complete prohibition with an organized market. However, to ensure the growth of the crypto market thanks to its developed regulation of cross-border KYC norms, investors The challenge will be to prepare and implement security mechanisms, reporting and taxability,” said Sumit Agarwal, founder, Regstreet Law Advisors and a former SEBI officer.
Although it is a step forward, it does not come without its own set of challenges. SEBI was not keen on regulating crypto as it has no inherent assets.
“How does one ensure settlement in the absence of an underlying,” a SEBI official said on the condition of anonymity?
Deepak Shenoy, founder of Capital Mind, an investment management firm, said that not all transactions are recorded on the blockchain.
“There is only one, or a few, wallet addresses that hold the coin, and customers buy/sell from each other, but this record is maintained only by the exchange. There is no regulator here. SEBI has to put in place a mechanism. As each transaction and each wallet is kept separate with a centralized demat type of store, you can have a separate database that is more real-time to store coin ownership,” Shenoy said.
To prevent money laundering, the Bill will ensure that certain provisions of the Prevention of Money Laundering Act (PMLA) are also implemented.
A senior crypto industry executive said: “My personal view still remains that a single regulator may not be the right approach. The future is not about trading assets anyway. It goes beyond that, such as NFT- Where will they fit in? Many, including us, are pointing to SEBI being the regulator.
Replying to a question related to cryptocurrencies in the Rajya Sabha on November 30, Finance Minister Nirmala Sitharaman said that the bill will be introduced after the cabinet’s approval.
“This is a risky area and not in a full regulatory framework. No decision was taken on stopping its advice. Steps are being taken to create awareness through RBI and SEBI. The government will introduce a bill soon. will do.”
Aarti Singh contributed to the story.
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