India: SEBI Proposes Multi-Regulator Approach to Crypto, Unlike RBI

A blend of curiosity and caution has characterized India’s stance on cryptocurrency. Despite the Indian market being one of the most enthusiastic about digital currencies, the government’s regulatory approach has not always aligned with this interest. In a recent development, the Securities and Exchange Board of India [SEBI] has suggested that multiple regulators should oversee the cryptocurrency market. This recommendation marks a significant departure from the Reserve Bank of India’s [RBI] more cautious stance, highlighting a potential shift in the regulatory landscape for cryptocurrency in India.

SEBI’s Progressive Stance

SEBI’s recommendations, as revealed in documents, represent the strongest indication to date. They suggest that some Indian authorities are open to the idea of private virtual assets being regulated rather than outright banned. This stance contrasts sharply with the RBI, which has consistently warned about the macroeconomic risks posed by private assets.

In its submissions to a government panel tasked with formulating cryptocurrency policy, SEBI proposed that various regulators should oversee different aspects of the market. SEBI suggested it could handle assets that resemble securities and new financial instruments like Initial Coin Offerings [ICOs]. Additionally, SEBI proposed issuing licenses for equity market-related crypto products. This approach further avoids the creation of a single, unified regulator for the market.

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The Reserve Bank’s Conservative Approach

India’s central bank has maintained a conservative view of these assets. Since 2018, the central bank has highlighted the potential risks digital currencies pose to the economy. It imposed a ban on lenders and financial intermediaries dealing with crypto-related businesses. This move was later overturned by the Supreme Court in 2020.

The diverging views of SEBI and the RBI reflect broader debates within India about how best to manage the growing interest in these assets. While the RBI focuses on potential threats to financial stability, SEBI’s approach suggests a willingness to engage with and regulate the market.

Similarities between India and the U.S. Markets

SEBI’s recommendations also mirror regulatory frameworks in other countries, such as the United States. In the U.S., the Securities and Exchange Commission [SEC] oversees tokens that qualify as securities, while other aspects of the cryptocurrency market fall under different regulatory bodies.

SEBI’s proposal suggested a similar multi-regulatory approach could be effective in India. The regulator’s openness to regulatory oversight of cryptocurrencies could pave the way for more structured and potentially favorable regulations for investors and businesses in the country.

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