Weeks After RBI Raised Concerns, Parliament Panel Proposes Crypto Watchdog

A Parliamentary Standing Committee on Finance has recommended that the government consider allowing a recognised Self-Regulatory Organisation (SRO) to oversee the crypto industry until a comprehensive law for Virtual Digital Assets (VDAs) is in place.

The proposed SRO would function under the supervision of a designated regulator such as the Reserve Bank of India (RBI) or the Securities and Exchange Board of India (SEBI), with investor protection at the heart of the proposal. 

The recommendation comes at a time when cryptocurrencies are taxed in India and exchanges share transaction data with anti-money laundering authorities, but the country still lacks a dedicated legal framework governing digital assets. The committee has urged the government to examine the need for a statutory framework covering cryptocurrencies, non-fungible tokens (NFTs) and decentralised finance (DeFi) tokens. 

The panel has also stressed that any future securities law should remain technology-neutral. That means tokenised versions of securities issued on distributed ledger or blockchain technology would continue to fall within the scope of securities regulations, ensuring that innovation does not create regulatory loopholes. 

Manhar Garegrat, India Head at Liminal Custody, said the recommendations mark an important milestone for India's digital asset ecosystem. "The Parliamentary Standing Committee's recommendations represent a constructive step toward building a more mature digital asset ecosystem in India. One of the most notable call-outs is the technology-neutrality of the law and the fact that even tokenised representations of securities on distributed ledgers would continue to remain within the ambit of the securities code. This will provide much-needed clarity for building tokenisation-related use cases in India," he said.

Garegrat also welcomed the committee's suggestion of permitting recognised SROs until a full-fledged regulatory framework is introduced. "This step will go a long way in assuaging concerns around investor protection in the short term. Overall, the recommendations are hugely welcome and are focused on ensuring that infrastructure evolves alongside regulation. They should help build investor protection measures, institutional confidence and sustainable growth," he added.

The committee's recommendations come weeks after the RBI reiterated its concerns over cryptocurrencies before the same parliamentary panel. The central bank argued that crypto assets pose risks to financial stability, monetary sovereignty and could facilitate money laundering, terror financing and tax evasion. It also maintained that a ban on private cryptocurrencies remains one of the options under consideration.