explained | What are SEBI’s concerns regarding crypto assets?

the story So Far: The Securities and Exchange Board of India (SEBI), which regulates the securities and commodities market, has told the Jayant Sinha-led Parliamentary Standing Committee on Finance that regulation of crypto assets will be difficult, given the need for the technology that maintains them. Looking at nature would be difficult. , Last month it was reported that the Reserve Bank of India had also shared its concerns about cryptocurrencies with the committee.

What exactly did SEBI tell the committee?

SEBI has essentially flagged problems with regulating crypto assets as they are “created in decentralized distributed ledgers, which are contained in computer nodes spread across the globe.” Crypto assets are commonly used as an umbrella term to include cryptocurrencies (eg, bitcoin, ether), as well as non-currency tokens such as utility tokens (which provide a certain utility within an ecosystem). are) and non-fungible tokens (which help establish ownership of a unique item), among others. The underlying technology is the same for crypto assets – distributed ledgers that are not controlled by a single entity.

What else did SEBI say?

According to media reports, SEBI has elaborated on the possible need for various regulators to deal with various aspects of the crypto asset market. For example, crypto exchanges represent one such aspect. These exchanges enable the use of a cryptocurrency as a bridge to convert the official currency of one country to another, in case of cross-border transactions. SEBI has suggested that these exchanges may be brought under the regulatory purview of RBI. The idea is to introduce KYC/AML/CFT (Know Your Customer/Anti-Money Laundering/Combating Financing of Terrorism) norms. Over the years, RBI has implemented a set of these guidelines in regulating banks to prevent them from being used by criminal elements.

Clients or clients of crypto assets are another important part of the market. SEBI has suggested that the Consumer Protection Act of 2019 be implemented to ensure that their interests are protected. It has also sought clarity on whether cryptocurrencies can be legally classified as securities. Now, they are not. According to media reports, SEBI has stated that crypto assets are not part of the definition constituted as securities under the Securities Contracts (Regulation) Act 1956, also known as SCRA. It is to be noted that what constitutes as securities under SCRA is exercised under SEBI Act.

why is it important?

In December 2021, it was widely reported that the government was looking to get SEBI to regulate crypto assets by bringing in legislation around that time. While such a law – the Cryptocurrency and Regulation of the Official Digital Currency Bill, 2021 – did not go into effect at the time, the government wants to treat cryptocurrencies as digital assets rather than cryptocurrencies, that has not diminished. Former SEBI chairman Ajay Tyagi said in March this year that the regulator has made several representations to the government regarding cryptocurrency regulation since November last year.

Has SEBI even cleared the issues of celebrity endorsement?

Yes. It has proposed to the committee that celebrities should not be allowed to endorse cryptocurrencies. a Hindu Business Line The report quoted a source as saying that SEBI’s stance was as follows: “Given that crypto products are unregulated, prominent public figures including celebrities, sports etc., or their voices may be used in support of crypto products.” / will not be used for advertisement.” That report also mentioned that he should be held responsible for any endorsement of crypto products.

What did RBI tell the committee?

according to a report of PTITop RBI officials told the committee that cryptocurrencies could lead to “dollarisation” of a part of the economy. It was against the sovereign interest of India, he said. “Almost all cryptocurrencies are dollar-denominated and issued by foreign private entities, this could ultimately lead to dollarization of a part of our economy which would be against the sovereign interest of the country,” the officials said. He linked this to a possible dilution of the RBI’s ability to regulate the money supply in the economy.

What has been the stand of the government?

In the last few years, the stand of the government has definitely changed. But there is still ambiguity as to what it actually wants to do. A bill that sought to be introduced last year indicated its intention to ban cryptocurrencies altogether. However, it did not see daylight.

The idea that the administration does not consider cryptocurrencies desirable has been clarified from time to time for a few years. It started out as statements in the budget but then an inter-ministerial report recommended an outright ban. Such currencies were and are considered problematic because they could easily escape official scrutiny, bypass and weaken the monetary system, and promote illegal trade. Around this time, an RBI circular sought to bar banks from doing business in such currencies, only to be struck down by the Supreme Court.

The cryptocurrency industry saw a window of hope earlier this year when Finance Minister Nirmala Sitharaman imposed taxes on crypto assets for the first time. The tax, at 30%, was first seen to settle the question of the legality of such currencies. But, Ms Sitharaman indicated in a TV interview that taxability is an issue that should not be confused with legitimacy.

Read also | Not in favor of one-time crypto ban: CII chief

Legislative clarity is still awaited. Meanwhile, the Sinha-led committee has been holding extensive talks in recent months with financial regulators, who, being the statutory bodies, report to Parliament. The committee also met representatives of the crypto industry last November. The bill aims to establish a facilitating framework for the creation of an official digital currency to be issued by the RBI.