India’s Securities and Exchange Board (SEBI) has emerged with a divergent stance regarding the oversight of cryptocurrencies, contrasting sharply with the Reserve Bank of India (RBI). While the RBI maintains reservations about private digital currencies, SEBI’s recommendations suggest a more open attitude towards incorporating private virtual assets into the financial landscape.
SEBI’s position comes amidst India’s rigorous regulatory stance on cryptocurrencies since 2018, a year marked by the RBI’s prohibition on financial institutions from engaging with crypto users or exchanges. Although this move was later overturned by the Supreme Court, it set the tone for India’s cautious approach towards cryptocurrencies.
SEBI’s Recommendations
In documents submitted to a government panel tasked with formulating financial policies,proposed a nuanced approach to cryptocurrency regulation. Instead of advocating for a blanket ban, recommended that different regulators oversee specific aspects of the crypto market, advocating against the establishment of a unified regulatory body for digital assets.
The board suggested that itself monitor cryptocurrencies categorized as securities, including Initial Coin Offerings (ICOs), akin to the Securities and Exchange Commission (SEC) in the United States. Additionally, SEBI proposed issuing licenses for products related to the equity market.
Comparison with International Models
SEBI’s recommendations align with international models, particularly the regulatory framework in the United States. By assigning oversight responsibilities to various regulatory bodies based on the nature of the asset, SEBI aims to ensure comprehensive regulation without stifling innovation in the cryptocurrency space.
Regulatory Scope and Oversight
SEBI emphasized the importance of regulating stablecoins and fiat-backed crypto assets, recommending that stablecoins be overseen by the RBI due to their close association with fiat currencies. Furthermore, SEBI suggested involvement from other regulatory authorities such as the Insurance Regulatory and Development Authority of India (IRDAI) and the Pension Fund Regulatory and Development Authority (PFRDA) in regulating insurance and pension-related virtual assets.
Concerns Raised by RBI
In contrast to SEBI’s approach, the RBI expressed concerns about the fiscal risks associated with cryptocurrencies. The central bank highlighted the potential for tax evasion and fiscal instability posed by decentralized peer-to-peer (P2P) activities in cryptocurrencies. Moreover, the RBI warned of the potential loss of seigniorage income, a profit earned by the central bank through money creation.
Impact of Previous Regulations
The aftermath of the RBI’s 2018 directives witnessed a surge in crypto trading despite regulatory ambiguity. Subsequent measures, including the introduction of taxes on crypto transactions and registration requirements for exchanges, aimed to bring more clarity to the regulatory landscape.
Global Regulatory Landscape
A report by PricewaterhouseCoopers (PwC) highlighted the diverse regulatory approaches adopted globally towards cryptocurrencies. With 31 countries already implementing regulations for crypto trade, India’s evolving stance underscores the need for a balanced approach that addresses regulatory concerns while fostering innovation.
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Conclusion
SEBI’s recommendations mark a significant departure from the RBI’s cautious approach towards cryptocurrencies, signaling a potential shift in India’s regulatory stance. By advocating for a nuanced approach that leverages existing regulatory frameworks, SEBI aims to strike a balance between investor protection and fostering innovation in the cryptocurrency space.
