Industry must work along with the govt to address the concerns.
By Rameesh Kailasam
Crypto, as a sector, has gained significant traction over the months; the industry is here to stay, and is seeing ther businesses benefit from its growth. But it faces regulatory uncertainty. Over the past few months, there have been concerted efforts by the industry to inform the ecosystem—including the government—of the various use-cases of crypto and blockchain, not only in terms of FDI but also taxes, advertising and employment across areas like journalism, advocacy, legal services and accounting.
The strategic importance of crypto goes beyond its significant contribution to the $10-trillion economy India may aspire to. The government is looking at wealth creation in India, and this is an emerging investment class with a bright future.
There have been concerns rightly expressed by RBI, that cryptocurrencies could be a potential ground for illicit activities. But do such risks not emanate from any financial product/market or any other asset class? Will this mean a ban on innovation and technology? Is this not an opportune time for the government and the regulator to find solutions along with industry, which would put reasonable security and accountability constraints?
A recent paper by IndiaTech.org recommends tightening checks and balances through which the industry could move towards collaboratively attaining regulatory recognition. While most businesses prefer no regulation, this one has been seeking regulatory clarity and legitimacy. The finance minister said that the government is working on a Cabinet Note to bring in relevant regulations, but fear, uncertainty and doubt lingers. RBI is right to ensure that multiple misuse cases do not end up overpowering use-cases emanating from private cryptocurrencies.
Tweaks to existing regulations, identifying cryptocurrencies as assets/commodities, clarity on taxation, KYC, disclosures as well as AML, CFT and FEMA regulations are all discussions that need to be furthered with industry participation.
Other jurisdictions are taking this opportunity to grab share in this space. India has reached the point when the government must make its intent regarding crypto clear, and there must be inclusive discussion on regulating this space. An outright ban on crypto is a negative outcome, both indirectly by encouraging its adoption in illegal markets and directly since it means foregoing one of the most promising avenues for continued expansion of India’s technological relevance.
It is pertinent to note that many governments, including the US and China, hold crypto assets, apart from large global corporations. India can easily regulate crypto. First, it needs to look at these as an investment class that could draw regulatory inferences for different classes that are current assets, stocks, gold or commodities. Once this is clear, so will be the rest of the regulation. As a nation, we can’t afford to have a scenario where this category of investment exists unregulated.
The onus is on the industry to adopt internal control practices and demonstrate the same to the government. It is time for the industry to come up with ways to address all concerns of the government and RBI on cryptocurrency, around areas such as KYC, trust, traceability, compliance and suspicious transaction reporting mechanisms. It is equally important for the government to engage with the industry and ensure an appropriate set of ring-fenced regulations to appease RBI. Without such a collaborative approach, it will be difficult to crack the regulatory uncertainty around crypto and leverage the advantage that has been created through Indian-founded and domiciled start-ups in this space.
The author is CEO, IndiaTech.org