Indian market regulator SEBI proposes customized cryptocurrency supervision

Key Takeaways

• The Securities and Exchange Board of India (SEBI) argues that cryptocurrency supervision should be split between different regulators depending on the nature of the digital asset.
• This approach stands in sharp contrast to the more conservative stance of the Reserve Bank of India, which continues to view cryptocurrencies, especially stablecoins, as a macroeconomic risk.
• SEBI is open to overseeing securities-like digital assets and proposes regulating ICOs (initial coin offerings) and other stock market-related products.

In a significant development for the future of cryptocurrencies in India, the Securities and Exchange Board of India (SEBI) has proposed a multi-regulatory framework to oversee cryptocurrency trading. This position, revealed in documents submitted to a government panel, represents the most open stance by Indian authorities on private virtual assets. However, this stands in sharp contrast to the Reserve Bank of India’s (RBI) continued call for tighter restrictions and highlights the growing regulatory gap. The information was reported by Reuters and marks a pivotal moment in the ongoing cryptocurrency debate in India.

Why is it important? While the Reserve Bank of India (RBI) continues to express deep concern over cryptocurrencies, highlighting them as a macroeconomic risk, SEBI’s contrasting stance suggests that the regulatory framework governing digital assets is likely to be relaxed. The developments emerged in an internal document submitted to a government panel tasked with making policy recommendations for the Treasury.

Historically, India has maintained a strict regulatory stance towards digital currencies.

RBI bans cryptocurrency trading in 2018 Despite being overturned by the Supreme Court in 2020, it reflects ongoing concerns about the integration of assets into the formal financial system through banking channels. Central banks’ resistance was further highlighted recently as they pushed for a ban on stablecoins, which are designed to provide stability by being pegged to fiat currencies.

Despite these challenges, SEBI’s latest submission presents a more compartmentalized regulatory vision.

The Board proposes oversight by a variety of agencies. Various aspects of cryptocurrency operations tailored to each domain. For example, SEBI itself monitors digital assets similar to securities, including new ventures such as Initial Coin Offerings (ICOs). It also proposes issuing licenses for stock market-related cryptocurrency products, mimicking regulatory frameworks such as those in the United States, where the Securities and Exchange Commission (SEC) oversees similar jurisdictions.

This approach is complemented by a proposal that other specialized bodies such as Insurance Regulatory and Development Authority of India (IRDAI) and Pension Fund Regulatory and Development Authority (PFRDA) should manage insurance and pension-related digital assets respectively.

However, the RBI still has significant opposition. A report to the Commission raised concerns about the risks associated with decentralized peer-to-peer cryptocurrency trading, which relies heavily on voluntary compliance, and the potential for tax evasion.

The central bank also pointed to the potential loss of ‘seigniorage’ income, which is the profit accrued to a government when it issues currency at a cost that exceeds its output.

These differences in regulatory philosophy This highlights a broader dilemma facing Indian financial authorities: balancing innovation and financial stability. As SEBI advocates a structured yet flexible regulatory environment, RBI’s caution reflects fears of financial instability and systemic risks posed by unregulated expansion of digital currencies.

The Indian government’s evolving stance, highlighted by recent plans to tax cryptocurrency trading and mandate local registration for cryptocurrency exchanges, suggests it is prepared to engage with this complex asset class, albeit cautiously.

As the panel moves to finalize its recommendations by June, the interplay between innovation and regulation will be critical in determining the trajectory of India’s digital financial landscape.

With 31 countries already regulating cryptocurrency trading, India’s final policy decision could impact not only its domestic market but also global standards for cryptocurrency regulation. The balance between fostering innovation and ensuring financial security remains a key challenge as stakeholders await clarity.

Also Read: Industry Leaders Hope for India’s Leading Role in Shaping Global Cryptocurrency Regulations