Virtual digital assets, India’s stand and the way ahead

Introduction

• Rulemaking is a difficult task, and emerging technologies can be particularly challenging to regulate due to rapid changes
• History is filled with laws that curtailed innovations, from the internet to mobile phones
• India is taking a measured approach to regulating virtual digital assets, with a recent notification extending anti-money laundering provisions to virtual digital assets businesses and service providers

India’s Approach to Regulating Virtual Digital Assets

• India extended anti-money laundering provisions to virtual digital assets businesses and service providers through a gazette notification on March 7, 2022
• Virtual digital assets platforms that carry out the specified activities must now register as reporting entities with the Financial Intelligence Unit-India
• Such risk-mitigation measures are in line with global guidelines put forward by the International Monetary Fund and the Financial Action Task Force (FATF)
• Standardizing these norms will make the Indian virtual digital assets sector more transparent and build confidence and assurance in the ecosystem
• Reconsidering tax rates for virtual digital assets in line with other asset classes could stem the flight of capital, consumers, investments, and talent, as well as dent the grey economy for virtual digital assets

Using the G-20 Platform

• India’s presidency of the G-20 provides an opportunity to consider steps taken by other G-20 nations, such as Japan and South Korea’s establishment of a framework to license VASPs and the Markets in Crypto-Assets (MiCA) regulation passed by the European Parliament
• A progressive regulatory framework will establish India’s virtual digital assets leadership

Conclusion:

• The emphasis is laid on the need for a progressive regulatory framework for emerging technologies, particularly in the virtual digital assets sector, to build transparency, confidence, and assurance in the ecosystem. India’s recent notification extending anti-money laundering provisions to virtual digital assets businesses and service providers is a step in the right direction, and could serve as a model for other countries. Furthermore, India’s leadership and experience on this issue could be crucial in establishing a global regulatory framework for virtual digital assets. In the end, a progressive regulatory framework could instil the animal spirit in India’s innovation economy and establish India’s virtual digital assets leadership.