User protection and a proposal for a licensing framework for companies seeking to operate in the cryptocurrency area will be part of an upcoming consultation paper on the sector, said a senior industry executive.
Even as specific regulations around crypto are yet to take shape, companies are setting up baseline user protection processes, including a redressal mechanism, fraud detection, regular filing of suspicious transaction reports (STRs), among others.
"After what has happened with WazirX, the confidence of the ecosystem is quite low.
"You can create a licensing regime to start with to ensure that companies who get a licence are vetted by an agency or an individual before they can begin operations,” said Ashish Singhal, co-founder, CoinSwitch, in an interaction with Business Standard.
A consultation paper on the crypto sector, which is yet to be published, was expected to be released by October.
It would include inputs from apex agencies and departments such as the Financial Intelligence Unit (FIU) - India and the Department of Revenue.
The paper will seek to determine whether to ban or legalise crypto.
"The consultation paper also hopefully would be out. You will see public responses of the BWA (Bharat Web3 Association) on what they recommend.
"In the background, we are working on all of it, on what should be the model law, what should be the kind of regulation that should come in, who should and how it should be regulated,” Singhal added.
BWA is an industry body with entities from the country’s Web3 ecosystem, including virtual digital asset (VDA) exchanges.
The calls for regulation of the space are longstanding and have picked pace in the backdrop of a surge in Bitcoin prices and a security breach at crypto exchange WazirX in July.
“Crypto is very complex. It touches aspects of security, payments and a lot of regulations.
"While it is for the government to decide on regulations, a separate regulator could serve better with improved representation from all sides,” he added.
The Reserve Bank of India (RBI) maintains its stance, stating that cryptocurrencies pose risks to financial and monetary stability.
Singhal explains that his company has seen a five-fold increase in trading volumes and active new users on the platform compared to the last month.
However, the firm is yet not close to the all-time highs of the crypto euphoria that sustained during the pandemic.
“It is still not at the level that we used to see in 2021 at the height of the last bull cycle.
"The United States is now clearly taking a precedence on setting the right protocol, standards, regulations for crypto, which will force other countries including India to not ignore this as an asset class and take the right steps,” he said.
In September 2023, the International Monetary Fund-Financial Stability Board (IMF-FSB) published a synthesis paper presenting guidelines for countries and a road map for crypto regulations.
The paper offers insights into investor protection, cybersecurity, anti-money laundering, and counter-terrorism financing measures.
In October 2023, Group of Twenty (G20) Finance Ministers and Central Bank Governors (FMCBG) adopted the road map on crypto assets proposed in the synthesis paper, calling for its swift and coordinated implementation.
The joint communiqué, issued after the final meeting of the FMCBG under India’s presidency in Marrakech, urged countries to implement policy frameworks.
It advocated outreach beyond G20 jurisdictions, global coordination, cooperation, and information sharing, as well as addressing data gaps.
