India may soon have more clarity on crypto asset regulation as the government has ramped up efforts in this direction.
The recent meeting of the Financial Stability and Development Council (FSDC), chaired by Union Finance Minister Nirmala Sitharaman, has convinced members of the need for a clear consensus on the legality of cryptocurrencies. The message was that regulators need to accelerate the initiative.
According to two people inside the discussions, the council discussed at length whether crypto assets should be legalized or banned.
“The status of crypto assets was among the key agenda items discussed at the council meeting. The council felt any ambiguity should be resolved soon,” said a senior insider.
As it turned out, the discussions revolved around two key issues – views on a full ban and who the regulator should be if the government decides to legalize crypto assets. Other options such as a partial ban and allowing a few crypto products were also considered, one of the officials said.
The meeting, attended by financial sector regulators and senior officials, discussed concerns about non-compliance with Financial Action Task Force (FATF) guidelines. The FATF standards ensure a coordinated global response to prevent organized crime, corruption and terrorism and help authorities track the money generated from such crimes.
India, like many other countries, is currently not FATF compliant for crypto assets. The FATF requires countries to take a clear stance on legalizing or banning crypto assets.
Opinions within the ministries differ as to whether cryptocurrencies should be banned. However, the Reserve Bank of India has advocated a total ban on crypto assets due to the risk involved.
The FM raised the matter at a recent meeting with International Monetary Fund (IMF) Managing Director Kristalina Georgieva in New Delhi. The minister had said that the IMF should play a leading role in regulating cryptocurrencies and ensure a globally coordinated and synchronized approach to the issue.
Back in April, during the spring meetings of the IMF and World Bank, Sitharaman had been campaigning for a global framework to regulate cryptocurrencies while warning of the potential risks they pose related to terrorist financing and money laundering.
Subsequently, the Economics Department of the Treasury had stated that the consultation paper on virtual digital assets was about to be published. BS could not independently determine whether the white paper had been submitted.
In December 2021, during Parliament’s winter session, the government had listed the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, to create a framework for digital currencies. The bill was never introduced as some parts of the government felt the need for detailed discussions on the issue.
In the Union budget for 2022-23, the government had defined crypto as virtual digital assets and also levied a 30 percent tax on profits from such transactions. It also proposed deducting a 1 percent withholding tax on all such transactions from July 1, 2022. The government had clarified that taxing does not mean legalizing virtual assets.