SEBI highlights concerns against regulation of crypto-assets

Last Updated13/06/2022

The Securities and Exchange Board of India (SEBI) has reportedly told the Parliamentary Standing Committee on Finance that regulation of crypto assets would be difficult given the nature of technology that sustains them.
It is the watchdog which regulates the securities and commodities market
It was also reported last month that the Reserve Bank of India had also shared its worries about cryptocurrencies with the committee.

SEBI has essentially flagged the problems with regulating crypto assets because they are maintained in decentralised distributed ledgers, which are nested in computer nodes spread all across the globe
The underlying technology for crypto assets is the same — distributed ledgers that aren’t controlled by any one entity.

It has elaborated upon the possible need for different regulators to deal with different aspects of a crypto asset market.
Crypto exchanges enable the use of a cryptocurrency as a bridge to convert one nation’s official currency to another.
These exchanges could be brought under the regulatory purview of the RBI.
The idea is to implement KYC/AML/CFT (Know Your Customer/Anti-Money Laundering/Combating of Financing of Terrorism) norms.
The subscribers or customers of crypto assets form another important part of the market.
SEBI has suggested that the Consumer Protection Act of 2019 be invoked to make sure their interests are safeguarded.

It has highlighted that cryptocurrencies can lead to “dollarisation” of a part of the economy and this was against India’s sovereign interest.
As almost all cryptocurrencies are dollar-denominated and issued by foreign private entities
This will undermine RBI’s ability to regulate money supply in the economy.

The government’s stance has definitely changed. But there is still ambiguity around the final decision
The idea that the administration doesn’t consider cryptocurrencies desirable has been made clear from time to time for some years
The Finance Minister imposed a tax for the first time on crypto assets.
The tax, at 30%, was seen at first to settle the question of legality of such currencies.
But it was made clear that taxability was an issue that is not to be linked to legitimacy.

The final legislation on crypto assets should be enacted only after wide consultations with financial regulators and representatives of the crypto industry. The concerns highlighted by RBI and SEBI should also be taken into account while framing such legislations

Prelims Takeaway

Mains Track Q Discuss about the concerns highlighted by the SEBI and RBI on crypto assets and suggestions for it.