India’s booming but unregulated cryptocurrency industry is subjecting itself to self regulation, with the Internet and Mobile Association setting up a formal board to review issues, apply best practices and come as close to formal regulation as possible, the association said on June 1.
The Blockchain and Crypto Assets Council, part of the IAMAI, will set up a formal board comprising lawyers, technical specialists and fintech compliance specialists to ensure self regulation.
"Crypto exchange business activity is legal in India today, but it is not formally regulated yet. There are no prescriptive guidelines. We are trying to make sure the serious players can follow the best global practices,” Naveen Surya, Chairman, Fintech Convergence Council and Chairman Emeritus of Payments Council of India (PCI) told Moneycontrol.
Over the next few months the board and exchanges will come up with practices- among them regular audits and inspections, a mechanism for customer redressal in cases of fraud and setting up an escrow account specifically meant for crypto transactions, a person aware of the matter said.
"We need to reduce the overall risk and perception of risks. Our purpose is to communicate and to bring it (self regulation) as close to proposed core principles of likely regulation as possible,” Surya said.
Moneycontrol first reported on May 12 that banks and exchanges are working with the IAMAI towards a resolution as banks and exchanges were in a standoff.
The crypto industry has been clamouring for regulation since the past few months, given that exchanges are seeing record investment activity despite regulatory uncertainty.
On May 31, banking regulator Reserve Bank of India (RBI) clarified that banks cannot use RBI’s 2018 order to ban cryptocurrencies to suspend users’ bank accounts or question them over crypto transactions. The ban was quashed by the Supreme Court a few months ago, calling it unconstitutional.
Exchanges already follow a few self-governed rules such as insisting on Know Your Customer (KYC) rules and following the Prevention of Moneylaunding Act (PMLA) norms, but more steps are required, industry insiders say.
To be sure, self regulation is a step towards addressing some concerns around legality and fraud, but it cannot be a substitute for actual government regulation, these people said.
For instances of fraud, embezzlement and the existence of bad actors, the industry does not have a clear solution or redressal mechanism yet.
"If you (the government) can regulate the Futures and Options (F&O) market, this is much easier. The idea is to put mechanisms in place and evolve and strengthen these processes to mitigate risks,” Surya said.
If self regulation works and if the government were to introduce regulation as well, most of the crypto industry and users’ concerns could be solved in the next 12-18 months, sources said.“It is well known that with 15 million users and upwards of 10,000 crores held by small investors, India is among the top players globally in the crypto market and for the welfare of the users it is very important that crypto assets are regulated. This is a good move by the RBI and a positive news for the crypto industry. It is a good sign that India is moving towards more acceptance and awareness amongst the mainstream markets and regulators and would help in shaping the crypto-assets market,” IAMAI-BACC said in a statement.