SEBI Proposes Multi-Regulatory Oversight for Cryptocurrency Trading in India, Hinting at a Shift in Policy

India’s financial regulatory body, the Securities and Exchange Board of India (SEBI), has put forward a suggestion for multiple regulatory authorities to monitor cryptocurrency trading. This move indicates a potential shift towards the acceptance of private virtual currencies within the nation. This proposal represents a significant change from the Reserve Bank of India’s (RBI) stance, which has traditionally seen private digital currencies as a risk to the country’s macroeconomic stability, as per documents reviewed by Reuters.

The contrasting views of SEBI and RBI have been submitted to a governmental committee charged with formulating policy recommendations for the Ministry of Finance. SEBI’s stance, which was not previously made public, diverges from India’s traditionally stringent regulatory approach to cryptocurrencies. In 2018, the RBI had imposed a ban on banks and financial institutions from engaging in cryptocurrency transactions, a ban that was subsequently overturned by the Supreme Court.

In 2021, the Indian government proposed legislation to prohibit private cryptocurrencies, but the bill did not pass. Moreover, during its presidency of the G20 in 2022, India pushed for the establishment of a global regulatory framework for these digital assets.

Despite the RBI’s ongoing advocacy for a ban on stablecoins, insiders close to the committee’s deliberations have hinted that the report could be completed by June. SEBI has proposed to the government panel that different regulators should supervise specific aspects of crypto-related activities within their domains, rather than having a single regulator for all digital assets. SEBI has offered to regulate those cryptocurrencies that are deemed as securities, oversee initial coin offerings (ICOs), and issue licenses for products related to the capital market. This proposed regulatory framework mirrors that of the United States, where the Securities and Exchange Commission regulates tokens and crypto exchanges identified as securities.

For crypto-assets that are pegged to fiat currencies, SEBI suggests that the Reserve Bank of India should serve as the regulator. Furthermore, the Insurance Regulatory and Development Authority of India (IRDAI) and the Pension Fund Regulatory and Development Authority (PFRDA) could oversee virtual assets related to insurance and pensions, respectively. SEBI also recommends that grievances from cryptocurrency investors should be addressed under the Indian Consumer Protection Act.