India's SEBI recommends multi-regulator approach for cryptocurrencies amid RBI opposition

The Securities and Exchange Board of India (SEBI), India's market watchdog, has proposed that multiple agencies regulate cryptocurrency transactions, the clearest indication yet that some authorities in the country are willing to consider private virtual assets. This differs from the Reserve Bank of India (RBI), which continues to see private digital currencies as a macroeconomic threat, according to documents examined by Reuters.

The records, provided to a government group charged with developing policy for the finance ministry, indicate SEBI's previously undisclosed viewpoint. This contrasts with India's previously strict stance on cryptocurrencies, which began in 2018 with the RBI prohibiting lenders and financial intermediaries from engaging with crypto firms. The restriction was overturned by the Supreme Court in 2020. The administration proposed a bill to ban private cryptocurrencies in 2021, but it has yet to be introduced. India proposed a worldwide regulatory framework for such assets last year while holding the G20 presidency.

The RBI is firmly opposed to stablecoins, citing macroeconomic dangers. A source acquainted with the panel's talks, who asked to remain anonymous, stated that the panel plans to complete its findings by June. Stablecoins are cryptocurrencies that have a stable value because they are pegged to fiat currencies, minimising volatility.

In contrast, SEBI's recommendations propose that multiple regulators control bitcoin operations within their respective sectors, rather than establishing a single unified digital asset regulator. SEBI recommended that it monitor cryptocurrencies that are regarded securities as well as handle Initial Coin Offerings (ICOs). SEBI may also grant licenses for stock market-related cryptocurrency products, comparable to the role of the Securities and Exchange Commission in the United States.

SEBI suggested that the RBI regulate cryptocurrency assets backed by fiat currencies. The Insurance Regulatory and Development Authority of India (IRDAI) and the Pension Fund Regulatory and Development Authority (PFRDA) would oversee virtual assets relating to insurance and pensions, respectively. SEBI proposed that investor issues be addressed through India's Consumer Protection Act.

The RBI's proposal highlighted fiscal policy risks, claiming that cryptocurrencies could promote tax evasion and that decentralised peer-to-peer transactions rely on voluntary compliance, posing a threat to fiscal stability. The central bank also cautioned about a probable loss of "seigniorage" income, which is the profit from currency production.

According to a PwC analysis in December, 31 nations have policies in place that allow for bitcoin trading. Following the Supreme Court's reversal of the RBI's 2018 order, the central bank increased compliance with rigorous anti-money laundering and foreign exchange regulations, thereby keeping cryptocurrencies out of India's formal financial system. Despite these measures, the crypto trade thrived. In 2022, the government put a levy on cryptocurrency transactions and required local registration for exchanges that facilitate cryptocurrency trades in India.

(With inputs from Reuters)