New Cambridge University Report ‘Global Crypto asset Regulatory Landscape’ Talks About Investor Laws
5 Cryptocurrency Law That Every Indian Must Be Aware Of If They Are Investing Or Thinking Of Investing In Digital Assets
The Indian Central government along with the Reserve Bank of India are still to provide regulatory guidelines for crypto use in the country. Mind you Reseve Bank of India back in 2018 issued a circular stating that the use of crypto in the Indian banking system is illegal. The ban was challenged in the Supreme Court as unconstitutional upon which the Supreme Court gave a 4-week ultimatum to the drafting committee responsible for finalizing the crypto regulatory framework. The deadline ended on March 29th where the government’s counsel requested the hearing to be postponed, and the Supreme court has now set a tentative date of July 23rd for the next hearing in the case.
The future of crypto use in India does not look optimistic since as per the latest update, Reserve Bank of India in its regulatory sandbox has neglected crypto and only considering blockchain technology for testing in the sandbox phase. The banking ban has led to many crypto service offering businesses to shut their operations in India since it was becoming increasingly difficult for companies to avail banking services to their customers.
So, even though crypto use is banned in India, there are numerous crypto enthusiasts who do indulge in crypto trading, buying and selling. Thus, it is very important for these folks to understand that even though crypto is not a legal financial entity, there are several financial laws that they must follow. Cambridge University’s Centre for Alternative Finance has recently released its new Global Cryptoasset Regulatory Landscape Study, sponsored by Japan’s Nomura Research Institute. India is also among the names of the countries that have been included in the report which outlines several existing laws are applicable to crypto assets and token sales.
5 Indian Financial Laws That Are Applicable To Cryptocurrencies
To start with, there are thousands of crypto tokens listed on the crypto trade market, and among those thousands, only Bitcoin and Ethereum are not considered to be securities. Thus the Indian Securities Contracts (Regulation) Act 1956 may apply to every crypto token apart from Bitcoin and Ethereum. However, the report also mentions that “Currently, there is regulatory uncertainty regarding applicability” of these laws.
The report states that,
“Some tokens may also fall within the purview of collective investment schemes which are regulated by the Securities and Exchange Board of India (SEBI).”
Companies Act 2013 And Payment System 2007
For every crypto token the Companies Act 2013 will be applicable and they must follow all the rules that are applicable under the law. Hatim Hussainone is one of the authors of the report also explained how various rules under the Companies Act 2013 are applicable to different crypto assets. He explained,
“These are primarily the Companies (Acceptance of Deposits) Rules, 2014 (Deposits Rules) which specify when the receipt of money, by way of deposit or loan or in any other form, by a company would be termed a deposit, and also provides certain exemptions from its applicability.”
Apart from the Companies Act, certain payment tokens may also fall under the Payments and Settlements Systems Act 2007 (PSSA). The report explained that the act is quite vague in itself as it doesn’t really elaborate on the definition and only mentions the term payment, according to which all virtual currencies might have to fall under that bracket. Therefore, if a cryptocurrency activity “were to constitute a ‘payment system’ or other regulated activity, the issuer would need payment system authorization from the RBI under PSSA and would require compliance with KYC/AML norms.”
Money Laundering Act Of 2002
The prevention of Money Laundering acct 2002(PMLA) will be applicable to all the crypto assets. The act also carries statutory penalties of up to 10 years imprisonment. However, the report clarifies that “it is unclear whether the reporting obligations prescribed under Chapter IV of the PMLA extend to wallet operators, crypto asset exchanges or third-party bitcoin services,”
The Report further states that
“A majority of crypto assets trading platforms are self-regulatory and follow extensive KYC/AML norms.”
Unregulated Deposit Schemes Bill 2018
The unregulated Deposit Bill is yet to be passed in the parliament, however, if passed and implemented it would prohibit all unregulated deposits which will be applicable to all kinds of Initial Coin Offerings (ICOs). The bill provides a schedule of regulated schemes while prohibiting any form of unregulated deposit schemes.
Apart from that, the term deposit in the act includes,
“An amount of money received by way of an advance or loan or in any other form, by any deposit taker with a promise to return whether after a specified period or otherwise, either in cash or in kind or in the form of a specified service, with or without any benefit in the form of interest, bonus, profit or in any other form, but does not include … certain enumerated categories”
Hussain one of the authors of the report explains how the bill will impact all kinds of modern-day fundraising techniques like ICOs,
“An ICO might be regarded as an ‘unregulated deposit scheme.’ So, virtual currency token issuers would need to ensure, in order to be outside the purview of the Ordinance, that (A) the scheme is regulated and/or (B) there should be no liability of returning any money received.”
Hussain went on to explain that the bill has already been passed in the Lok Sabha (The House of Commons) on February 13, 2019. However, it is still waiting to be put on for the debate in the Rajya Sabha (The house of representatives) since the house has been dissolved due to Lok Sabha Elections in May. Hussian concluded,
“Ordinances are usually required to be approved by the Parliament within 6 weeks or they lapse, in this case, no official confirmation about its approval by the Parliament has been made yet … Considering the elections, I am sure the 2019 Ordinance would take another few months (at least) to be made into a law.”
While most of the nations across the globe are continuously trying to find suitable ways to introduce consumer-friendly regulations in their states, India continues to maintain their passive stance. Although the government is very keen on leveraging blockchain technology in various sectors of governance. The RBI is already testing a blockchain based payment services, while the prestigious Tata Consultancy Services (TCs0, one of the largest IT solutions and consultancy service provider has partnered with Ripple to use the company’s banking solution s for its foreign transactions.
Thus, it would be really great if the government realize the true potential like many other countries and start forming better regulation policies to encourage the use of modern techs like blockchain and its by-product cryptocurrencies.