The Securities and Exchange Board of India (SEBI) this week said it may work with the RBI and the Insurance Regulatory and Development Authority of India (IRDAI) to oversee India’s digital asset sector. In its proposal to the government, India’s markets regulator said it could monitor cryptocurrencies that can be seen as securities, as well as monitor initial coin offerings (ICOs). As part of SEBI’s advice, RBI and IRDAI could respectively scrutinize fiat-backed stablecoins and virtual assets linked to insurance and pensions.

In essence, SEBI proposed that instead of having one specific authority governing the virtual digital asset sector, a collection of already established government authorities could distribute oversight of this promising sector.

Speaking to Gadgets360, Edul Patel, who heads crypto investment platform Mudrex, said SEBI’s recognition of India’s VDA sector is itself a positive sign. In addition, its advice on decentralizing oversight of the VDA sector between different authorities will draw on the expertise of different financial authorities, thereby improving regulatory clarity.

“SEBI’s proposal for multiple regulators to oversee the Virtual Digital Asset (VDA) sector represents a balanced and pragmatic approach. This is a progressive position that recognizes the multifaceted nature of the VDA. It can also help build investor confidence as a well-regulated environment reduces the likelihood of market abuse and improves the overall integrity of the ecosystem,” said Patel.

The Web3 sector in India has shown growth in recent years, which has drawn the government’s attention to this industry. From three percent in 2018, India’s global share of the blockchain developer pool grew significantly to 12 percent last year, according to a recent report by Hashed Emergent, an India-focused Web3 venture firm. The report also notes that India, out of 150 nations, has claimed the top spot for on-chain adoption in 2023 with over 35 million trading accounts on top Indian exchanges.

In 2023, when India chaired the G20 group, it prioritized formulating a crypto roadmap that could work equally across all countries that are part of the G20. Domestically, the country is also gradually introducing regulations in the Web3 sector to ensure that these digital assets are not used to facilitate illicit cross-border money transfers for laundering or terrorist financing. India, for example, is taxing crypto income and activities from 2022. Indian crypto players are also mandated to comply with KYC and anti-money laundering laws.

Rajagopal Menon, vice president of Indian crypto exchange WazirX, said it was only a matter of time before the impact of the government’s decision began to play out on the Web3 sector – which is why a calculated approach is undoubtedly needed.

“These are suggestions / recommendations; let’s see what the final shape will be, whether we have multiple regulators or one,” Menon told Gadgets360. “India has already taken baby steps towards regulation by taxing and introducing crypto under PMLA. According to the G20 declaration in Delhi, all signatories must have cryptocurrency regulation by 2025. This report suggests that the government has set the stage for regulations.”

While government bodies like SEBI, RBI and IRDAI are taking active steps to help the government manage the VDA sector without stifling its use cases and growth opportunities, the industry itself is working to adopt some self-regulatory practices.

The Bharat Web3 Association (BWA), which is the industry advisory body headed by Dilip Chenoy, recently came up with a set of self-regulatory guidelines to streamline the token listing process for crypto exchanges operating in India. The purpose of these rules is to ensure that fraudulent tokens and potentially risky cryptocurrencies do not enter the Indian Web3 ecosystem.

CoinSwitch founder Ashish Singhal, who is also a BWA member, reached out to X to comment on SEBI’s latest proposal to the government.

“Encouraging views on crypto from SEBI, which oversees India’s booming stock markets. A favorable regulatory environment has paved the way for greater consumer adoption in several other sectors in the past, such as telecommunications, information technology, e-commerce, etc. This is a beginning and many nuances will have to be discussed. However, great news for crypto in India,” Singhal said.

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