Supreme Court Advocate Shares His Views on Creating Fruitful Legal Cryptocurrency Rules in India
N.S. Nappinai, an Indian Supreme Court advocate has come up with suggestions that can help in regulating cryptocurrencies and digital asset in India. She says that the right regulatory framework should be devised in a way that promises transparency, oversight, and accountability. Nappinai is of the belief that “one size fits all” kind of framework would be a mistake which will only increase the complexities around the use of cryptocurrencies.
A Look Back at The Indian Crypto Dilemma
It all started with the Reserve Bank of India issuing a circular in 2018 which imposed a complete banking ban on crypto. The impact of the circular was quite devastating for various crypto exchanges operational at that point in time, and many had to shift their operations outside the country due to the banking ban. Nappinai believes that the ban imposed by RBI has actually created more problems than solving any, she explains
“By closing out the banking route, the Indian government merely pushed the entire market into the cash system thereby making it more opaque and impossible to track or trace.”
The circular by the RBI was then misinterpreted in leading media publications as a complete blanket ban on the crypto use, where many went ahead to deem the use of crypto as illegal. However, the ban imposed by RBI was challenged in the Supreme court as being unconstitutional.
The Supreme court took note of the RTI filled against the ban and directed the Finance ministry to work along RBI and come up with a regulatory framework for the use of cryptocurrencies, and the reasons why it has been deemed unfit for the banking use. The Supreme Court also provided a deadline of 4-weeks, however, upon the completion of the deadline on 31st March, the state asked the court to postpone the hearing as it needs more time. The next hearing has been scheduled for July 23rd.
After the postponement of the hearing, RBI initiated a regulatory sandbox program to test the various aspects of blockchain and its different use cases, however, RBI did not include any cryptocurrency in the sandbox program, which led to the speculations that the RBI might be thinking of completely banning crypto use in the country.
The National Association of Software and Services Companies (Nasscom) is one of the many organization which wants the central government to include cryptocurrencies in the regulatory sandbox. Nasscom is of the belief that including cryptocurrencies and taking input from the stakeholders would help the regulatory body understand the risks involved better. Nasscom added further,
“Since crypto coins and tokens are an important component of the blockchain technology, the draft regulations appear to exclude testing of smart contracts and other approved blockchain technology under the sandbox.”
Supreme Court Advocate Suggest Roadmap For Crypto Regulations
The committee responsible for finalizing the regulatory framework for crypto use is being headed by Subhash Chandra Garg, Secretary of Department of Economic Affairs. As per the latest media reports, a draft bill has been circulating in concerned ministries for discussion. However, the biggest complaint from the enthusiastic crypto community is the absence of any stakeholders from the community, who can help the drafting committee to understand the complexities involved in regulating crypto assets in a better way.
Nappinai, the Supreme Court advocate and a cyberlaw specialist recently sat down for an interview with The Economic Times, where she shared her views on the state of cryptocurrency regulation in India. She said, by regulating cryptocurrency, the government would not only create a booming market which would ensure the inflow of surplus capital, but also the burden would be shifted to different exchanges.
“The regulation would ensure transparency, oversight, and accountability. The onus or burden on the government may be shifted to exchanges or other platforms offering virtual currencies or trading thereon. Explicit terms of functioning for such exchanges can regulate the kinds of virtual currencies that may be traded, the modes and methods of reporting, the restrictions on trading (including on valuation spurts etc.,) and also investor protection provisions can be incorporated.”
“One Size Fits All ” is not The Right Approach For Crypto Regulations
There have recent reports in the media that the government is thinking about banning some cryptocurrencies and regulating a few approved ones. One such report was published in the Economic Times titled “Banning of Cryptocurrencies and Regulation of Official Digital Currencies Bill 2019,” The report cited an anonymous government official claiming to know the details of the bill.
Nappinai when asked about her thoughts on the speculations of banning cryptocurrencies while regulating only a few, the advocate responded that any regulatory reform with “One Size Fits All” approach would be a huge mistake. She elaborated,
“There is also debate on whether cryptocurrency can be banned at all. After all, how would the government enforce it without infringing on the privacy of all. Any form of an electronic device may be used to store cryptocurrency.”
The crypto trader community is undeterred by these rumors as there hasn't been any official announcement by the government. India despite the taboo and misinformation around the crypto use ranks 11th in terms of the trading volume per country.
Indian Government on Observing Mode At Present
The Indian government is currently observing other countries and their approach towards regulating digital assets. The Securities and Exchange Board of India in its yearly report for 2017-18 mentioned that they have sent several concerned officials to countries like Japan, the U.K., and Switzerland to study and understand how they have approached the regulations for cryptocurrencies.
India being a G20 country has agreed to follow the international standards set by the Financial Action Task Force (FATF). Nappinai drew the attention towards the United States who were quite passive towards the use of crypto, but with time and their research, they have decided to regulate crypto assets rather than completely banning it. She explained,
“With every change that the USA has brought about, other countries including Singapore and Japan have followed suit. India has many options to draw from but it has stopped short of taking a definitive call.”
The Importance of Regulating Crypto in India
Nappinai stressed the importance and need for a regulatory framework stating that in the absence of regulations, the users would not stop from indulging themselves if they feel it is beneficial to them, and this could lead to an untapped growth of a new technology, which might reach a tipping point where any form of regulation reform might not contain it. She believes the regulation should come in as a helping hand and not out of fear of losing control.
She explained further,
“India should really look clinically at formulating simple regulations to meet its unique socio-economic milieu and lend support for developing the technology.”
She concluded the interview by stating,
“With respect to crypto-assets, the regulation would ensure transparency and certainty to both the business and investor stakeholders or at least put to rest this vertical as an investment option,”