Regulatory Sandboxes For Cryptoassets, Cryptocurrencies And Blockchain Are Needed In India

Cryptoassets and cryptocurrencies use blockchain infrastructure that is robust, secure, resilient and can accomopdate many more assets, projects and initiatives. For instance, blockchain can be used to create disruption in educational sector of India by launching unique and futuristic online projects. But in order to grow, sufficient and qualitative research and development must be undertaken in India in the fields of blockchain, cryptoassets, cryptocurrencies, etc. This must be supported by launching regulatory sandboxes were crypto stakeholders can develop their products and services.

There are two main regulatory stakeholders who may be involved in the field of regulatory sandboxes for cryptoassets and cryptocurrencies. These are Govt of India (GOI) and Reserve Bank of India (RBI). Fortunately, both of them favour the regulatory sandboxes approach, especially in the FinTech field and both would support research and development in the field of blockchain. Unfortunately, both of them are against private cryptocurrencies though GOI is not as strict as RBI is in this regard. So it is not clear whether GOI would promote and support regulatory sandboxes for cryptoassets and cryptocurrencies in India.

As far as RBI is concerned, it is totally non tolerant towards cryptocurrencies and it banned the same through a circular in the past. The circular was set aside by the Supreme Court of India in March 2020 due to lack of a law in this regard. Now Indian Govt is planning to formulate a law on cryptocurrencies that would decide the fate of private cryptocurrencies in India.There seems to be some disagreement between the Govt and RBI regarding treatment of private cryptocurrencies. RBI has maintained its strict approach towards private cryptocurrency while Govt may left a window of survival for them. But nothing can be conclusively said about it till the public draft of law is out for consultations.

As far as cryptoassets and cryptocurrencies regulatory sandboxes are concerned, RBI has once again showed its dislike for private cryptocurrencies and cryptoassets in its Enabling Framework for Regulatory Sandbox document (Pdf), dated 16-12-2020. RBI has gone far beyond cryptoassets and cryptocurrencies and it has released an indicative negative list of products/services/technology which may not be accepted for testing for regulatory sandboxes purposes. As per the negative list, cryptocurrency/cryptoassets services, trading/investing/settling in cryptoassets, Initial Coin Offerings (ICO), etc would not be allowed for regulatory sandboxes purposes. As a result the small window that crypto stakeholders were expecting from RBI would not available and their only hope is the window that may be provided or may not be provided by (GOI) in the proposed law.

This CoE is supported by DPIIT recognised startups of Perry4Law Organisation (P4LO) and its techno legal incubators like CECSRDI and TLCEODRI. So we can safely assume that we have a voice and concern that would be suitably accommodated by GOI and RBI while implementing the final policy and law for cryptoassets and cryptocurrencies in India. We offer our two decades of techno legal experience and expertise to streamline cryptoassets and cryptocurrencies regulation and management in India. Stakeholders who are part of any existing regulatory sandbox can also approach us to meet all legal requirements pertaining to that particular sandbox and we would love to help them.

Private Cryptocurrency May Be In Troubled Waters After Proposed Law By India

Crypto stakeholders in India are eagerly waiting for Indian govt to clarify the position on cryptocurrencies and their legal validity. For reasons best known to the govt, it preferred to keep things close to its chest and this is making crypto stakeholders of India nervous. But one thing is sure. Private cryptocurrencies would have a rough time and would be in troubled waters once the Indian law comes into force.

India will propose a law banning cryptocurrencies, fining anyone trading in the country or even holding such cryptocurrencies, a senior government official told Reuters. The law could propose to criminalise possession, issuance, mining, trading and transferring of cryptocurrencies. But the law could give cryptocurrencies owners up to six months to liquidate, after which penalties will be levied.

The plan is to ban private cryptocurrencies while promoting blockchain. The Reserve Bank of India (RBI) voiced its concern against cryptocurrency again last month, citing risks to financial stability of India from them. But RBI has been working on launching its own digital currency that would be supported by the proposed law.

The government would allow a “window” for experiments on Bitcoin, blockchain and cryptocurrency. The fine details of such window are not available in the public but we have requested Indian govt through this portal to allow regulatory sandboxes and CoE like TLCECBI to continue to implement research and development works and projects in the cryptoassets, cryptocurrencies and similar fields.

While the RBI could have taken its own official decision on cryptocurrencies, the Finance Ministry is “very clear” that they would not be “shutting off all options.” RBI is a part of the Finance Ministry, but holds complete autonomy over monetary policies, issuance of the Rupee, and regulation of the Indian banking system. The Finance Ministry, on the other hand, handles macroeconomic policies, public financing, inflation, and stock markets.

Even Supreme Court of India in its March 2020 decision has held that RBI has power to regulate cryptocurrencies provided a law made by Parliament is in place. RBI cannot regulate cryptocurrencies by using circulars as that would violate Article 19(1)(g) of the Constitution of India. Under Article 19(1)(g) of the Constitution a citizen has the right to carry on any occupation, trade or business and the only restriction on this unfettered right is the authority of the State to make a law imposing reasonable restrictions under Clause (6). And this is exactly what Parliament is doing through the proposed law.

We would update our readers from time to time till the proposed law is enacted. Even after enactment of the law, we would help crypto stakeholders to stay on the right side of the law.

Proposed Cryptocurrency Law Of India Would Be A Tough Act To Manage For Crypto Exchanges Of India

Cryptocurrencies in India always faced a rough ride. From time to time, the Reserve Bank of India (RBI) showed its dislike for unregulated private cryptocurrencies and in the year 2018 RBI issued a circular barring banking institutions from extending services to crypto exchanges in India. This was challenged before the Supreme Court of India (SCI) and in March 2020 a three judge bench of SC struck down the RBI circular as unconstitutional.

This is just a temporary relief as Indian govt is planning to enact The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 into a law soon. The Bill seeks to prohibit all private cryptocurrencies in India but it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses.

Some may consider the judgment of SC as a win but it has given more ammunition to the govt than to the crypto stakeholders of India. The court held that RBI has power to regulate cryptocurrencies but the prohibition imposed through the April 2018 circular was disproportionate, and,therefore, ultra vires the Constitution. It was disproportionate because the ban was not backed by any law made by the Parliament and it is only through a law made by Parliament that reasonable restrictions can be place on Article 19(1)(g), hence cryptocurrencies. Now govt is doing so through the proposed bill.

The argument that cryptocurrencies are not legal tender but tradeable commodities and therefore they fell outside the RBI’s regulatory ambit was rejected by the court. But the proportionality argument was accepted by the court and the circular was struck down.

The court observed that as long as there are certain institutions who accept cryptocurrencies as valid payment for the purchase of goods and services, it was sufficient to bring the currencies within the regulatory power of the RBI. The court held that “Anything that may pose a threat to or have an impact on the financial system of the country can be regulated or prohibited by RBI, despite the said activity not forming part of the credit system or payment system.” This power to regulate also included the power to prohibit.

We at Techno Legal Centre of Excellence for Cryptoassets And Blockchain Of India (TLCECBI) request Indian govt to allow regulatory sandboxes and CoE like TLCECBI to continue to implement research and development works and projects in the cryptoassets, cryptocurrencies and similar fields.

We also invite crypto stakeholders in India and other jurisdictions to collaborate with us and work for establishing and implementing a techno legal crypto law regime in India. Let us build a responsible and law compliant crypto environment in India.