The crypto industry body has suggested that the government can regulate cryptocurrencies by introducing a licensing regime for exchanges and other intermediaries and bringing in strict norms to track funds used in crypto trading, Moneycontrol has learnt from sources.
The Blockchain and Crypto Assets Council (BACC) is known to have said that the concern of investor safety can be addressed through imposing registration or licensing which will ensure proper management and disclosures by exchanges and wallet providers.
BACC comprises crypto exchanges and is part of the Internet and Mobile Association of India (IAMAI). The Council is co-chaired by Ashish Singhal, founder of CoinSwitch and Sumit Gupta, founder of CoinDCX.
The Council's suggestions were part of the responses submitted to the Parliamentary Standing Committee on Finance which had put forth questions to the crypto industry in a meeting held on November 15. Moneycontrol had reported on November 23 that the industry will be submitting written responses to the Standing Committee chaired by BJP MP Jayant Sinha.
Further, the industry has suggested that Know Your Customer (KYC) and Anti-Money Laundering (AML) norms should be imposed in a bid to regulate trading and allow tracking of transactions to a real-world identity. BACC is also said to have sought clarity on the status of crypto under the Foreign Exchange Management Act (FEMA) and tax laws.
In response to the Standing Committee’s queries on whether cryptocurrency usage will take currency out of the domain of world governments, the body clarified that the intent is for crypto-tech to co-exist seamlessly with sovereign currencies rather than replace or compete with them. Sources added that BACC in its response has stated that crypto-asset-related developments have no direct implications for monetary policy currently, but may need to be monitored.
On the key issue of how cryptos-related risks can be mitigated, the industry body recommended it to be done in two phases. Firstly, crypto firms must collect KYC information from customers, there should be transparency on details of operating entities in the ecosystem and audits where required.
Sources added that the second step suggested by BACC is that regulators could work with the industry to put in place a proportionate crypto-tech tailored regime, potentially via a Self-Regulatory Organisation (SRO) or a new legislative framework entirely.
To allay the concerns of the government on the impact of misleading advertisements by exchanges, BACC recommended self-regulatory guidelines for advertising in crypto-tech that could be put in place by the SRO.
The Council is also known to have highlighted the need for clear guidance by countries on the tax treatment of crypto-tokens. BACC also cautioned that any tax regime should not end up regulating the entire ecosystem and technology behind cryptos as opposed to the services provided by the industry.
The tech and ecosystem intermediaries here include miners, validators, and wallet developers who may not directly know the buyers and sellers in the decentralised crypto-tech industry, hence making it impossible for them to comply with new tax reporting norms.
The industry said any ban would deprive Indians of the value of this property and result in huge losses as a ban would have a cascading global effect with cryptocurrencies plummeting.
Moneycontrol further learns that the industry had also submitted a ‘Cryptofinance: Opportunities and Challenges’ report during the meeting on November 15 which highlighted the positive impact and opportunities of crypto-tech.These responses come at a time when the industry is waiting for the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 to be tabled in the ongoing Winter Session of the Parliament. On November 30, Finance Minister Nirmala Sitharaman had said in the Rajya Sabha that the bill will be brought to the Parliament after the nod from the Cabinet.