India has been exploring ways to regulate cryptocurrency for several years now. The government’s stance on the matter has been somewhat ambivalent, with some officials advocating for a total ban while others recognize the potential of blockchain technology.
Recently, the Union Finance Ministry announced a new development in the country’s crypto regulatory landscape. In this post, we’ll explore what this update entails, what it means for the Indian crypto industry, and whether it’s a positive or negative development for the sector.
Announcement from Ministry of Finance
This week, the Union Finance Ministry in India announced that Virtual Digital Asset (VDA) service providers would be required to register with the country’s Financial Intelligence Unit (FIU-India).
The FIU-India is a government subsidiary responsible for collecting financial intelligence as part of the Prevention of Money Laundering Act (PMLA). The primary objectives of the PMLA are to prevent and combat money laundering and to confiscate property obtained through laundered funds.
What Does This Mean?
At first glance, it might seem like the new regulation is simply requiring crypto exchanges to comply with Know Your Customer (KYC) and Anti-Money Laundering (AML) laws. However, the situation is a bit more complicated than that.
In fact, over 200 petitions were filed against PMLA amendments after last July’s review, arguing violations of personal liberty, procedures of law, and the constitutional mandate.
Criticism of PMLA
Critics of the PMLA have claimed that it effectively gives enforcement agencies “unbridled power of summons,” without having to provide the accused with the Enforcement Case Information Report (ECIR).
Additionally, judges uphold that the accused must carry the burden of proving their innocence, contrary to the established criminal law principle of “innocent until proven guilty.” This has raised concerns about the potential for abuse by law enforcement agencies.
India’s Stance on Crypto
Despite the concerns raised by critics of the new regulation, it’s important to note that India isn’t looking to ban cryptocurrencies altogether. In fact, the government has recognized the potential of blockchain technology and has spoken positively about it.
However, officials have also acknowledged the risks associated with blockchain-based assets, believing that a cautious approach to regulation is necessary to mitigate these risks. India urged the G20 to wait for a synthesis paper between the International Monetary Fund (IMF) and the Financial Stability Board (FSB), which should be ready by September, indicating that India wants to coordinate its regulatory approach with the rest of the world.
The Future of Crypto Regulation in India
Forcing Web3 businesses to report to FIU-India is only the first step towards regulating cryptocurrencies in the space. The government is taking its time to regulate crypto, considering blockchain-based assets useful but risky.
It’s worth noting that this isn’t the first time India has attempted to regulate cryptocurrency. In 2018, the Reserve Bank of India (RBI) issued a circular banning financial institutions from dealing with cryptocurrency-related businesses. The move was met with widespread criticism, and the Supreme Court of India eventually struck down the circular in 2020.
It’s clear that India is still trying to figure out how best to regulate cryptocurrency. The government recognizes the potential benefits of blockchain technology, but it’s also aware of the risks involved. This latest development indicates that the government is taking a measured approach to regulation and is seeking to work with other countries to develop a coordinated approach.
India’s judiciary appears reasonable, and these events show they aren’t slacking in their efforts to regulate this space responsibly. The whole picture will only be visible once the joint report is published later this year.
The Impact on the Indian Crypto Industry
The impact on the Indian crypto industry of the recent announcement that VDA service providers will be required to register with FIU-India is still unclear. On the one hand, regulation could help to legitimize the industry in the eyes of investors and the wider public, which could boost adoption.
It’s worth noting that India’s crypto industry is still relatively small compared to other countries, with only a handful of major exchanges and trading platforms operating in the country. The cost and complexity of compliance could put off smaller players, and the increased scrutiny could deter some investors. However, there is potential for growth, particularly as India’s digital infrastructure continues to develop and more people gain access to the internet.
The recent announcement is just the latest development in a long and complex history of crypto regulation in India. While the country has not taken any steps towards banning cryptocurrencies outright, the government has taken a cautious approach, recognizing both the potential benefits and the risks associated with these new forms of digital assets.
Overall, it remains to be seen how the Indian crypto industry will respond to these developments. Some may see regulation as a necessary step towards wider adoption and growth, while others may be concerned about the potential costs and barriers to entry. Ultimately, the impact will depend on how the government implements these regulations and how they are perceived by the wider public and investors.