A prominent Indian law firm Finlaw Associates along with Estonian Crypto Association recently announced its intention to submit a representation to the Indian government regarding cryptocurrency regulations in the country. The representation will be submitted to the Government of India’s Finance and Law Ministries by the last week of February 2021.
Currently, the absence of clear regulations for the cryptocurrency and blockchain sector has created a lot of uncertainties for the community. So far, the government has adopted an ambiguous stance towards cryptocurrencies and blockchain sector as it publicly claims to adopt blockchain technology for governance while shunning the cryptocurrencies that actually make the distributed ledger operational in the first place.
According to Adv. P.M Mishra, the Managing Partner of Finlaw Associates, the proposed regulatory representation will include a paper that is more or less focused on regulations related to the existing FEMA Act, SEBI guidelines on Securities, CIS (Collective Investment Scheme), RBI, Income Tax and GST.
In his words, Mr. Mishra answers few questions that are prevalent in the country’s cryptocurrency community.
Q: Why did Finlaw Associates think of bringing such a proposal? What is its need?
Adv. Mishra: We all know the idiom, “Ignorance is Bliss”, which may be true for some but ask anyone in commerce or finance and they will make it abundantly clear that “Ignorance is Risk”. Each market embraces reasonable regulations to ensure transparency and fairness, but when it comes to the emergent fourth asset class – cryptocurrencies, there is no single regulator in India. Such a situation has created an atmosphere of uncertainty and confusion.
In the absence of clear regulations for cryptocurrencies and blockchain technology, businesses in the sector are impacted, innovation hindered, and the arising lack of accountability has encouraged cryptocurrency-related fraud and Ponzi schemes to thrive.
If India has to emerge as a wise leader that encourages innovation, entrepreneurship and squeeze maximum benefits from crypto and blockchain technology, it has to lead the way with a well-balanced regulatory framework for the industry.
Q: How is India losing due to the lack of Crypto regulations? What’s its impact on innovation?
A: Without clear regulations, cryptocurrency innovation in India is being stifled. Entrepreneurs sit on the sidelines for fear of innocently running afoul of the law while investors hang back because of uncertainty regarding valuations. Meanwhile, India will suffer as other countries lure innovators away by framing rules that make their jurisdictions more favorable to cryptocurrencies. The government also risks allowing fraudulent purveyors of cryptocurrencies to drive out the good.
Apart from the intellectual brain drain and fraudulent activities, clear crypto regulations also encourage more people to adopt cryptocurrencies, increasing the volume of transactions. It, in turn, creates a potential to generate additional revenues in the form of direct as well as indirect taxes without burdening the community.
Q: What is new in your proposal? How is it different from other proposed stuff in different countries?
A: Unlike the previously framed draft crypto regulations, we request the government to ensure adequate participation from all the stakeholders. In our proposal, we encourage the creation of a self-regulatory body to promote and enforce standards among the cryptocurrency community. At the same time, an interagency working group including the representatives from the crypto community needs to be convened to harmonize the existing regulatory practices and develop a formal policy on cryptocurrencies.
We believe that it is important to keep the general public updated about the crypto regulations, especially since the whole premise behind the creation of cryptocurrencies is decentralization and democratization of finance. By issuing a public notice on the proposed rule governing cryptocurrencies, the government should receive comments from the public and if required, make necessary amendments based on the received feedback.
The government should also officially recognize the importance of decentralization and use it as a basis for determining whether a cryptocurrency is a security or not. Usually, any cryptocurrency with the highest levels of decentralization does not qualify as a security.
These steps will help to promote order, consistency, and accountability within the crypto market without imposing undue burdens. It will also help India as a country to emerge as a wise leader in the regulation of cryptocurrency, which will spur entrepreneurship and innovation in this country. After all, wisdom – more than ignorance – is a truer form of bliss.
Similarly, amendments in the Income Tax and GST laws would provide clarity on the applicability of tax and finally, the Indian Penal Code (IPC) along with IT laws would recognize specific acts as offenses in order to impose penalties.
Q: Do you think cryptocurrencies will become the future money?
A: Cryptocurrencies are increasingly being recognized as a medium for value exchange in many countries, with some governments even allowing their citizens to pay bills and taxes with them. It is just a matter of time before bitcoin and other cryptos are universally accepted.
The emergence of neo banks is gradually moving the entire banking operations online. It also offers a great deal of flexibility and a strong use case for the use of cryptocurrency in banking – an opening for digital assets to enter mainstream finance.
The resilience of cryptocurrencies is evident from the way BTC bounced back following the COVID situation across the globe. At the same time, other countries including China are showing more than expected interest in crypto as they work towards shaping the future alternative economy. The ongoing race is more the reason for India to jump in and not left behind.
In the end, what we would like to convey is that our country is desperately in need of fintech regulation related to crypto, AI, blockchain, and more to stop Ponzi scheme operators, cybercrimes, and financial terrorism as a whole.
Mr. Mishra can be reached at admin@finlaw.in or +91-9820907711