The Indian crypto industry has cheered the adoption of the road map on crypto assets proposed in the International Monetary Fund’s (IMF) and Financial Stability Board’s (FSB) synthesis paper by G-20 Finance Ministers and Central Bank Governors (FMCBG) at Marrakech. Players believe that progressive regulations and a proactive approach to framing crypto-specific guidelines will act as a major fillip for the growth of the industry in the country.
Crypto players based in India expect to see a crypto regulatory authority empowered with regulatory capacities to apply regulation and exercise supervision and oversight within the next 18 months.
“This ensures that the crypto asset ecosystem operates within a well-defined regulatory framework, promoting stability and investor protection. It could happen as early as next year immediately after elections. Now that we have the road map, the expectation is that it will be implemented in the next 18 months,” said Rajagopal Menon, vice-president at WazirX, a crypto exchange company.
Companies also expect clear consultation from the Centre with all industry stakeholders before the finalisation of policy guidelines.
This clarity for the Indian crypto player is important due to the uncertainty they have seen in the recent past from the government, which impacted the user base. Issues such as taxation of assets, a bear market and regulatory uncertainties in the past impacted several. Many have rather diversified and started to provide other financial services on their platform. This also impacted business expansion plans with several laying off employees.
The IMF-FSB synthesis paper published last month in the backdrop of G-20 discussions around a reporting framework for crypto assets outlines a policy framework implementation of crypto assets. Issues such as taxation of assets, a bear market and regulatory uncertainties in the past. Many have diversified into other financial businesses as the crypto uncertanty became difficut to attract users to their platforms.
The IMF- FSB roadmap includes global coordination, cooperation, and information sharing on crypto assets, implementation of its policy frameworks, an outreach beyond G20 member jurisdictions, and development of a common framework to address data gaps.
As the road map on crypto assets gets implemented in the future, crypto companies operating in the country will need to invest in compliance measures to adhere to regulations. This includes investments in resources, technology, and personnel.
“Investments will include the cost of adapting business processes, hiring compliance personnel, and implementing software or systems for monitoring and reporting. This is going to put added pressure on companies as trading volumes have fled to foreign exchanges after the implementation of tax deducted at source,” said Menon.
Additionally, the paper mentions that a growing presence of crypto-assets used for payments poses challenges for data collection and analysis such as cross-border usage and currency substitution.
“As the data collection is synthesised, it will lead to lesser assumptions and a better policy framework. As far as currency substitution is concerned, the IMF-FSB paper mentions this risk in light of countries wherein the Monetary Policy Institutions and the currency is weak. We do not believe that this would be the case in India,” Vivekananda observed.
The collection and analysis of data associated with crypto assets is necessary to understand the risk profile, scale of crypto activities, and develop a macro-understanding of crypto use in the country.
“The sectoral and demographic approach taken to collect test data can help build a macro understanding of the usage of digital assets including stablecoins. This can aid in building a balanced and dynamic policy while keeping the interests of all industry stakeholders in mind. The challenges to acquiring data can be addressed by framing clear standard operating procedures for all stakeholders so that accurate data can be used to make well-informed decisions,” said Rahul Pagidipati, chief executive officer, ZebPay; a cryptocurrency exchange.
Meanwhile, Menon explains that the goal of such data collection and analysis is to monitor and mitigate illegal activities such as crime and money laundering that could be facilitated by cryptocurrencies.
Data collection will also act as a repository for regulators while ensuring compliance within the crypto sector.
“For India, this is particularly important as the nation is in the process of creating a comprehensive global database of cryptocurrency exchanges. This move is in line with efforts to arm law enforcement agencies like the Enforcement Directorate (ED), the Income Tax Department, and the Central Bureau of Investigation (CBI) with actionable data. This database initiative aims to bring some order to the cryptocurrency market, often referred to as the Wild West due to its lack of regulatory oversight,” he noted.