Crypto trading in India to face closer watch as SEBI issues recommendations

The RBI continues to support a ban on stablecoins, cryptocurrencies specifically designed to maintain a steady exchange rate with fiat currencies, making them less susceptible to extreme volatility

By Shashank Bhardwaj

Published: May 17, 2024 02:35:47 PM IST

Updated: May 17, 2024 09:25:33 AM IST

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According to documents recently reviewed by Reuters, the Securities and Exchange Board of India (SEBI) has suggested that multiple regulators oversee cryptocurrency trading in the country. This approach differs significantly from the Reserve Bank of India (RBI) stance, which has expressed concerns that private digital currencies pose a macroeconomic risk.

These documents recommend the establishment of a dedicated division within India’s financial authorities to handle regulatory oversight. Additionally, the Reserve Bank of India reiterated its position that digital currencies present a macroeconomic risk. Reuters reports that government officials have submitted these documents to a panel advising the country's finance ministry on policy matters.

Instead of a single unified regulator handling digital assets, SEBI suggested that various regulators should collectively oversee digital asset activities within their respective jurisdictions.

In this setup, SEBI would oversee digital assets classified as securities and initial coin offerings and handle the licensing for financial products. Meanwhile, the Reserve Bank would be responsible for regulating fiat-backed stablecoins.

The Insurance Regulatory and Development Authority of India would manage crypto-related insurance, while the Pension Fund Regulatory and Development Authority would oversee pension matters related to digital assets. Additionally, disputes between investors should be addressed under India's Consumer Protection Act.

Reserve Bank of India (RBI) is more cautious about cryptocurrencies. Sources indicate that the RBI supports banning stablecoins, citing concerns that digital assets could enable tax evasion. The agency also pointed out decentralised peer-to-peer cryptocurrency transactions rely on voluntary compliance and pose fiscal stability risks.

Since 2018, India has maintained a stringent stance against cryptocurrencies. The central bank initially banned lenders and financial intermediaries from dealing with crypto users or exchanges, although this move was later overturned by the Supreme Court. In 2021, the government drafted a bill to ban private cryptocurrencies, though it has yet to be introduced. Last year, during its G20 presidency, India advocated for a global framework to regulate digital assets.

The RBI also believes that cryptocurrencies could lead to a loss of income for central banks from money creation. India has been updating its regulatory framework to encompass digital assets. In December 2023, the country issued 15 noncompliance notices to foreign crypto exchanges, blocking their URLs and mobile applications for local users.

As of now, KuCoin and Binance are the only exchanges that have secured licenses from the Financial Intelligence Unit to resume operations. Recently, the Indian government urged G20 members to collaborate on regulating digital assets.

Shashank is the founder of yMedia. He ventured into crypto in 2013 and is an ETH maximalist. Twitter: @bhardwajshash