India’s SEBI Proposes Multi-Regulator Approach for Cryptocurrency Oversight

• SEBI proposes multi-regulator oversight for cryptocurrency trading, diverging from RBI’s concerns.
• Stablecoins could face prohibition, the panel aims to finalize recommendations by June.
• India’s regulatory stance on cryptocurrencies remains stringent despite Supreme Court intervention in 2018.

India’s Securities and Exchange Board of India (SEBI) has proposed a novel regulatory framework for cryptocurrencies, advocating a multi-regulator approach, according to Reuters .

This proposal marks a potential shift in the country’s stance on private virtual assets, but it remains to be seen if it will be adopted.

SEBI’s perspective reportedly differs from that of India’s premier bank, Reserve Bank of India (RBI), which has expressed concerns about the potential macroeconomic risks associated with private digital currencies in a separate report.

Both SEBI and RBI submissions have been forwarded to a government panel currently formulating financial policy.

India’s regulatory approach towards digital assets has been marked by uncertainty since the RBI’s 2018 directive prohibiting financial institutions from engaging with cryptocurrency users and exchanges. Despite the Supreme Court overturning this ban in 2020, a lack of clear regulations has persisted.

SEBI’s proposed framework appears to draw inspiration from the U.S. model, advocating for decentralized oversight with different regulators managing various aspects of cryptocurrency activity.

Specifically, SEBI suggests regulating cryptocurrencies that function similar to securities and Initial Coin Offerings (ICOs). Meanwhile, assets backed by traditional currencies (fiat) could fall under the RBI’s purview.

“SEBI said it could monitor cryptocurrencies that take the form of securities as well as new offerings called Initial Coin Offerings (ICO). It could also issue licenses for equity market-related products, said the person aware of the panel’s discussions.”  

Sources close to the panel have revealed discussions regarding a potential ban on stablecoins, with a final decision expected by June.

Despite the ongoing regulatory debate, there are growing concerns regarding cryptocurrency tax evasion and fiscal stability risks. Particularly, the RBI highlighted potential challenges such as tax evasion and the loss of central bank revenue.

Following the Supreme Court’s decision in 2018, the RBI effectively excluded cryptocurrencies from the formal financial system. Nonetheless, trading continued to thrive, prompting the government to introduce a crypto transaction tax and mandatory local registration for exchanges. According to a transparency report, 31 countries have implemented regulations allowing crypto trading.