A report by public policy research firm Chase India and law firm INDUSLAW has emphasised the necessity of principle-based standard operating procedures (SOPs) and a technology-driven regulatory framework for virtual digital assets (VDAs). The report comes at a time when the crypto asset market has been gaining momentum in recent years.
The report underscores the importance of developing a technology-driven regulatory framework that encourages cross-border cooperation and addresses key policy concerns related to financial stability, investor protection, consumer protection, and money laundering.
India, under its ongoing G20 Presidency, is making efforts to establish a global consensus on regulating the crypto asset sector. While the crypto asset market has experienced significant growth in terms of investor numbers and market capitalisation over the past few years, it currently operates in an unregulated environment.
The report notes a significant gap in the existing legal framework’s inability to address policy issues and worries about crypto assets. When it comes to regulating transactions involving VDAs, the regulatory approach has generally been conservative, with a wait-and-see attitude towards the creation of a new framework.
The joint report titled “Standard Operating Procedures (SOPs) to Regulate Key Concern Areas of Virtual Digital Assets (VDAs)” delves into the major areas of concern for governments and regulators globally, including India. It suggests several SOPs, such as adherence to specific requirements by Virtual Asset Service Providers (VASPs), risk-assessment procedures, cyber-risk assessment, incident reporting within specified timeframes, auditing, and transparent grievance redressal mechanisms.
The Ministry of Electronics and Information Technology (MeitY) is tasked with monitoring the advancement and potential associated with blockchain technology, VDAs, and other emerging technologies. The research suggests classifying VDAs as a distinct asset class.
The research advises creating a high-level coordination committee that collaborates with multiple government agencies and produces advisory for regulatory needs in order to achieve efficient coordination. It also recommends developing a central government mechanism for interagency data sharing and collaboration. The research also urges the creation of a Self-Regulatory Organisation (SRO) to oversee the VDA industry in India.
The report highlights the importance of governments worldwide developing SOPs for crypto assets, as the widespread adoption of VDAs without regulatory oversight could have implications for macroeconomic and financial ecosystem stakeholders. The report aims to complement ongoing efforts by the International Monetary Fund (IMF) and the Financial Stability Board (FSB) in building global consensus in this area.
Aushal Mahan, Vice President of Chase India, emphasised the need for governments to establish SOPs for crypto assets, stating that unregulated adoption of VDAs could impact the macroeconomic and financial ecosystem.
Avimukt Dar, Founding Partner of INDUSLAW, stated that the SOP framework, addressing common concerns identified by governments worldwide, aims to establish consistent practices and a principle-based approach globally for virtual digital assets.