India Prepares Landmark Crypto Regulation Consultation Amid Global and Domestic Challenges

India Prepares Landmark Crypto Regulation Consultation Amid Global and Domestic Challenges

India is set to take a significant step in its journey toward crypto regulation as the Department of Economic Affairs (DEA) readies a crucial consultation paper slated for release between September and October 2024. This document is expected to be a pivotal element in defining the country’s approach to digital currencies. According to insiders, the government is also planning to actively engage with stakeholders to refine its regulatory framework.

India Invites Public Feedback on Crypto Regulation

The forthcoming paper will solicit input from a wide range of stakeholders, underscoring the government’s dedication to establishing a robust regulatory framework for cryptocurrencies. This move aligns with global efforts, particularly those within the G20, to develop a coordinated approach to regulating digital assets.

In October 2023, Finance Minister Nirmala Sitharaman emphasized the G20’s consensus on the need for harmonized regulations across nations. She pointed out that while global cooperation is vital, each country must also adapt its regulations to address specific local challenges.

“Given the understanding that globally now all of us are on the same page about how regulations can happen, countries and their specific legislative arrangements will also have to be worked out,” Sitharaman stated. Her remarks highlight India’s dual strategy of working in concert with international bodies while also focusing on domestic regulatory needs.

The DEA’s consultation paper is expected to play a key role in gathering insights and opinions on effectively regulating crypto assets in India. Economic Affairs Secretary Ajay Seth, in a September 2023 interview, mentioned that the government would meticulously consider these recommendations before finalizing its policy.

Seth also highlighted the need to address the unique risks that cryptocurrencies pose to emerging economies like India. His comments reflect the country’s evolving stance on crypto regulation.

In 2023, during its G20 presidency, India was instrumental in endorsing guidelines from the International Monetary Fund (IMF) and the Financial Stability Board (FSB), which advise against outright bans on crypto activities. These guidelines have influenced India’s current regulatory approach.

Current Regulation & Divergent Views Among Authorities

Currently, India’s regulatory focus is on anti-money laundering (AML) and counter-terror financing (CTF) measures, which have been extended to crypto assets and intermediaries since March 2023. The upcoming consultation paper is expected to address crucial policy questions, including the scope and extent of regulation in the crypto space.

This update comes at a time when Indian authorities are navigating differing opinions on the handling of private virtual asset trading. The Securities and Exchange Board of India (SEBI) appears more open to permitting such activities, while the Reserve Bank of India (RBI) remains cautious, citing concerns about potential macroeconomic risks.

This internal debate is not new. India’s approach to cryptocurrencies has seen numerous shifts, particularly after the Supreme Court’s 2020 decision to overturn the RBI’s 2018 ban on crypto-related financial services. A bill proposing a ban on private cryptocurrencies was drafted in 2021 but was never introduced, indicating the government’s cautious stance.

However, recent developments point to a more nuanced regulatory framework. In July 2024, the RBI and SEBI collaborated with other government bodies to develop a comprehensive crypto policy for India. The DEA’s upcoming consultation paper is expected to reflect the G20-endorsed IMF-FSB framework, marking a significant step towards a balanced and inclusive approach to crypto regulation.

This decision comes at a critical juncture, as India’s largest crypto exchange, WazirX, recently suffered a security breach. On July 18, WazirX was hacked, leading to the loss of $230 million worth of crypto assets. While investigations are ongoing, a recent forensic report has given WazirX a “clean chit.”