Deliberations on the future of regulating crypto during the recent G20 Summit in New Delhi has left the crypto industry players such as WazirX, CoinSwitch, and Zebpay hopeful as governments across the world want to regulate it instead of banning, amidst slowing business and increased layoffs in the sector. While there has not been further discussions held by the Indian government, the country’s lead on bringing this policy in place is keeping the industry going.
These discussions were based on a synthesis paper released jointly by the International Monetary Fund (IMF) and G20’s Financial Stability Board (FSB) on September 7. According to industry players, this will bring more transparency and financial stability to the digital asset.
The paper includes policy recommendations and standards to help authorities address the macroeconomic and financial stability risks posed by crypto-asset activities and markets, including those associated with stablecoins and decentralised finance. The document, as of now, only describes how the policy and regulatory frameworks developed by the IMF and the FSB fit together, but does not establish new policies or recommendations.
The paper set a target for global financial organisations to collect detailed "test" data on various crypto assets used in making payments by the end of 2025, to understand the digital asset better. The data will be broken down by type, sector, and counterpart country.
Industry views
According to Rajagopal Menon, vice president at WazirX, the paper addresses all the concerns that Indian authorities have with crypto - be it monetary sovereignty, financial stability bringing in more accountability, and transparency.
“It also gives a road map for authorities to frame rules. On the whole the synthesis paper is in the Goldilocks Zone of regulation; neither too rigid nor to loose,” he told Moneycontrol.
He added, “Since this report was created at India’s request, we expect the government to take it seriously…We have to remember that baby steps towards regulation have already started with tax imposition and bringing crypto under PMLA. Most likely, we are going to see regulation in more incremental steps.”
Ashish Singhal, co-founder and CEO at CoinSwitch, said that throughout its G20 Presidency, Indian government has not only undertaken measures to expand the dialogue but also made concerted efforts to improve the understanding of virtual digital assets (VDAs). He said, “This unequivocally signifies that we have progressed beyond discussions centered on banning VDAs.”
“The fact that our leadership believes in the power of technology and how it should be more inclusive reflects a forward-thinking approach. Recognising the importance of a global consensus on crypto represents a significant and positive stride for the industry,” he added.
While there might not be the threat of a blanket ban immediately as per the document, Menon explained that banning crypto will also be a tedious and expensive process.
“The document states unequivocally that ‘blanket bans will not work.’ They are expensive and complex to implement. Because of the inherent borderless-ness of crypto-assets, they also tend to raise the incentives for circumvention, potentially resulting in heightened financial integrity threats and inefficiencies,” he explained.
Bringing transparency, reducing data gaps
The initiative to reduce data gaps and understand the usage of digital assets as a means of payment is a welcome move as it will allow policymakers to take an informed, analytical approach to framing regulations, Rahul Pagidipati, CEO, ZebPay, told Moneycontrol.
“The sectoral and demographic approach taken to collect this test data can help build a macro understanding of the usage of digital assets including stablecoins, and this can aid in building a balanced and dynamic policy while keeping the interests of all industry stakeholders in mind,” he said.
Sidharth Sogani, founder and CEO at crypto research firm CREBACO, too welcomed the document but added that India is still at least one and a half years away from having anything concrete in terms of regulations. The country is likely to wait for the global regulations to come in the future, which could also be a reason behind Coinbase’s sudden exit from the India market, he said.
Out of the G20 countries, only about 15 countries have clear regulations on how crypto works including Canada, US, Europe, and Japan to name a few, Sogani mentioned.
“India does not have anything like that. We just have a taxation policy but even that is not clear on how the tax should be calculated. And I believe it's unfair, because set offs are not allowed. 30% tax is okay, but set offs are not allowed,” he told Moneycontrol.
Need for universal tax policy
Sogani, who was one of the experts representing the sector during crypto industry’s meetings with government bodies, said that there needs to be a global uniform tax policy, risk officers, and a regulator for centralised exchanges.
“That document proposed certain things such as advanced KYC, policies around anti-money laundering, and foreign account tax compliances. It also mentioned how money should travel, and how it is applicable for Bitcoin. There was an indirect indication that there should be uniform tax policy,” he added.
CREBACO had suggest in its recommendations to tighten KYC document requirements asking for registered bank accounts and even source of income to reduce money laundering activities.
Sogani said, “Additionally, we had proposed for a uniform tax policy because if we talk about ‘One world, one Earth, one Future’, why not one tax because this is a global commodity, the same bitcoin is traded in India and that same wallet can be used in the US as well.”
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