Description |  What are SEBI's concerns about crypto assets?

Description | What are SEBI’s concerns about crypto assets?

Why did the market watcher say that such currencies are difficult to regulate? What is the status of the invoice?

Why did the market watcher say that such currencies are difficult to regulate? What is the status of the invoice?

The story so far: The Securities and Exchange Board of India (SEBI), the watchdog that regulates the securities and commodities market, told the Parliamentary Finance Standing Committee led by Jayant Sinha that regulating crypto assets will be difficult given the nature of the technology that supports them. . Last month, it was reported that the Reserve Bank of India also shared its concerns about cryptocurrencies with the committee.

What exactly did SEBI tell the committee?

SEBI mainly flagged issues with the regulation of crypto-assets because they are “held in decentralized distributed ledgers nested in computer nodes spread all over the world.” Crypto assets are often used as an umbrella term to encompass cryptocurrencies (e.g. Bitcoin, Ether) as well as non-currency tokens such as utility tokens (providing a particular utility within an ecosystem) and non-tradable tokens (helping to establish ownership of them). unique items), among others. The underlying technology of crypto assets is the same – distributed ledgers that are not controlled by any entity.

What else did SEBI say?

According to media reports, SEBI elaborated on the possible need for different regulators to deal with different aspects of a crypto-asset market. For example, crypto exchanges represent such a direction. These exchanges enable the use of a cryptocurrency as a bridge to convert one country’s official currency to another in case of a cross-border transaction. These SEBI-recommended exchanges can be included in the regulatory scope of the RBI. The idea is to apply KYC/AML/CFT (Know Your Customer/Anti-Money Laundering/Fighting the Financing of Terrorism) norms. For several years now, the RBI has been issuing a set of these rules to prevent banks from being used by criminal elements.

Subscribers or customers of crypto assets form another important segment of the market. SEBI recommended the introduction of the Consumer Protection Act 2019 to ensure its interests are protected. He also sought clarity on whether cryptocurrencies could be legally classified as securities. They are not right now. According to media reports, SEBI said that crypto assets are not part of the definition of what constitutes securities under the Securities Contracts (Regulation) Act of 1956, also known as SCRA. It should be noted that what constitutes securities under SCRA are those used under the SEBI Act.

Why is this important?

In December 2021, it was widely reported that the government wanted to enable SEBI to regulate crypto assets by introducing legislation around this time. While such legislation – the Cryptocurrency and Official Digital Currency Act Amendment, 2021 – did not materialize at the time, the talk that the government wants to treat cryptocurrencies as digital assets and not currencies has not waned. Ajay Tyagi, the former head of SEBI, said in March this year that the regulator has made several statements to the government on cryptocurrency regulation since November last year.

Has SEBI also flagged issues with celebrity endorsements?

Yes. He suggested to the committee that celebrities should not be allowed to support cryptocurrencies. A Hindu Business Line Explaining SEBI’s stance, a source said in the report: “Given that crypto products are not regulated, celebrities, sports, etc. This report also stated that they should be held accountable for any endorsement of crypto products.

What did the RBI tell the committee?

According to a report by PTISenior officials of the RBI told the committee that cryptocurrencies could lead to the “dollarization” of part of the economy. They said that this is against the sovereign interests of India. “Almost all cryptocurrencies are denominated in dollars and are issued by foreign private entities, eventually leading to the dollarization of part of our economy in ways that go against the country’s sovereign interests,” the officials said. They attributed this to a possible undermining of the RBI’s ability to regulate the money supply in the economy.

What was the government’s position?

In the last few years, the government’s attitude has definitely changed. But there is still uncertainty about what he really wants to do. A bill that was sought to be passed last year signaled its intention to ban cryptocurrencies altogether. However, he did not see the light of day.

The notion that management does not see cryptocurrencies as desirable has been clarified from time to time over the past few years. It started out as statements in the budget, but later an inter-ministerial report suggested a direct ban. Such currencies were and are considered problematic because they could easily evade official scrutiny, bypass and weaken the monetary system, and fuel illegal trade. During this time, an RBI circular sought to prevent banks from transacting with such currencies, only for the Supreme Court to drop it.

The cryptocurrency industry saw a window of hope earlier this year when Finance Minister Nirmala Sitharaman first imposed taxes on crypto assets. The 30% tax was initially seen to solve the problem of the legality of such currencies. However, Ms. Sitharaman stated in a TV interview that taxability is an issue that cannot be linked to legitimacy.

Also read | Totally not in favor of Crypto ban: CII chief

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

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