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5 Major Indian Laws That Apply to Cryptocurrency

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India has a number of laws that currently apply to cryptocurrency. A new Cambridge University report explains some of these laws. News.Bitcoin.com talked to one of the authors of the report to uncover more details. Meanwhile, the Indian government is currently finalizing regulations specific to crypto assets.

Also read: Indian Supreme Court Postpones Crypto Case at Government’s Request

Laws Applicable to Cryptocurrency

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 among the countries covered in the report which outlines a number of existing laws applicable to cryptocurrency and token sales.

5 Major Indian Laws That Apply to Cryptocurrency

While the Indian government is working on drafting the legal framework specifically for cryptocurrency, several existing laws apply to crypto assets in addition to the infamous RBI circular that prohibits all regulated entities from providing services to crypto businesses.

For cryptocurrencies that are deemed securities, the Securities Contracts (Regulation) Act 1956 may apply. However, the report states that “Currently, there is regulatory uncertainty regarding applicability” of this law to tokens but some “may fall within its remit if, inter alia, they are issued by an identifiable issuer and backed by the underlying assets of the issuer.” It further details:

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 and Payment Systems

For all token types, “the regulations under the Companies Act, 2013 and rules thereunder would be triggered, along with other RBI regulations,” the report reads.

News.Bitcoin.com talked to Hatim Hussain, one of the authors of the report, who explained on Sunday how each Indian law applies to crypto assets. Regarding the Companies Act, he elaborated, “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.”

5 Major Indian Laws That Apply to Cryptocurrency

Payment tokens may also be subject to the Payments and Settlements Systems Act 2007 (PSSA). The Cambridge report claims that there is nothing in this act “to exclude virtual currency, since only the term payment is referred to, as opposed to currency, legal tender or money.” Therefore, if a cryptocurrency activity “were to constitute a ‘payment system’ or other regulated activity, the issuer would need payment system authorisation from the RBI under PSSA and would require compliance with KYC/AML norms.”

Money Laundering

Further, the use of cryptocurrencies may fall under the Prevention of Money Laundering Act 2002 (PMLA), which 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, cryptoasset exchanges or third-party bitcoin services,” adding:

A majority of cryptoasset trading platforms are self-regulatory and follow extensive KYC/AML norms.

5 Major Indian Laws That Apply to Cryptocurrency

Unregulated Deposit Schemes

There is also the Banning of Unregulated Deposit Schemes Bill 2018 which has been tabled in Parliament. It proposes to prohibit all unregulated deposits which could apply to initial coin offerings (ICOs), according to the report.

Hussain explained to news.Bitcoin.com that the bill “provides a schedule of regulated deposit schemes, and all unregulated deposit schemes are prohibited.” Additionally, “The term deposit 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],’” he described, elaborating:

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 added that this bill “was passed in the Lok Sabha (House of Commons) on February 13, 2019 but will lapse in the House of Representatives (Rajya Sabha) after the dissolution of the Lok Sabha due to elections in May this year.” He further remarked, “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.”

What do you think of Indian laws as they apply to cryptocurrency? Let us know in the comments section below.

Disclaimer: None of the information in this article is intended as investment advice, as an offer or solicitation of an offer to buy or sell, or as a recommendation, endorsement, or sponsorship of any products, services, or companies. Neither Bitcoin.com nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.


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RBI Excludes Cryptocurrency From Indian Regulatory Sandbox

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India’s central bank, the Reserve Bank of India (RBI), has unveiled its framework for a fintech regulatory sandbox. While blockchain and smart contracts are welcomed, the bank stated that cryptocurrency and related services “may not be accepted for testing.”

Also read: Indian Supreme Court Postpones Crypto Case at Government’s Request

RBI Welcomes Blockchain Tech

The RBI published its draft framework for a fintech regulatory sandbox Thursday. The central bank explained that one of the recommendations the inter-regulatory fintech working group, which it set up in July 2016, came up with is to introduce a framework for a regulatory sandbox (RS). The RBI clarified that this framework includes “a well-defined space and duration where the financial sector regulator will provide the requisite regulatory guidance, so as to increase efficiency, manage risks and create new opportunities for consumers.”

The central bank proceeded to provide a list of innovative products, services, and technology which could be considered for testing. In addition to money transfer services, digital KYC, digital identification services, AI and machine learning applications, the list includes smart contracts and “applications under blockchain technologies.”

RBI Excludes Cryptocurrency From Indian Regulatory Sandbox

The working group included representatives from the RBI, the Securities and Exchange Board of India (SEBI), the Insurance Regulatory and Development Authority, the Pension Fund Regulatory and Development Authority, the National Payments Corporation of India, the Institute for Development and Research in Banking Technology, select banks and rating agencies.

Crypto Excluded From Sandbox

While noting that some entities may not be suitable for the sandbox “if the proposed financial service is similar to those that are already being offered in India,” the RBI noted an exception. Applicants that “can show that either a different technology is being gainfully applied or the same technology is being applied in a more efficient and effective manner” may be considered for the sandbox, the bank described.

Nonetheless, it continued with “An indicative negative list” of products, services, and technology “which may not be accepted for testing.” This list includes cryptocurrency, crypto assets services, crypto trading, crypto investing, as well as settling in crypto assets. It also includes initial coin offerings and “any product/services which have been banned by the regulators/Government of India,” the central bank wrote.

RBI Excludes Cryptocurrency From Indian Regulatory Sandbox

RBI’s Unchanging Stance Toward Crypto

India’s central bank has never been a fan of cryptocurrency. It issued a statement in December 2013, cautioning crypto “users, holders and traders … about the potential financial, operational, legal, customer protection and security related risks that they are exposing themselves to.” The bank issued another statement in February 2017, advising the public that it had not given any license or authorization to any entity or company dealing in cryptocurrency. It followed up with another statement in December of the same year, reiterating its concerns regarding the “risk of virtual currencies including bitcoins.”

On April 5 last year, the RBI published a statement on Developmental and Regulatory Policies, affirming that cryptocurrencies “raise concerns of consumer protection, market integrity and money laundering, among others.”

RBI Excludes Cryptocurrency From Indian Regulatory Sandbox

The following day, the central bank issued the infamous circular banning all regulated entities from dealing in cryptocurrencies or providing services to any person or entity dealing with cryptocurrency. Affected services include maintaining accounts, registering, trading, settling, clearing, lending, accepting cryptocurrency as collateral, opening accounts of exchanges dealing with cryptocurrency and transferring money in accounts relating to purchase or sale of cryptocurrencies.

The ban went into effect in July last year and a number of industry participants have filed writ petitions with the supreme court to lift the ban. The court is expected to hear the case on July 23, after repeatedly postponing it.

Do you think the RBI should allow crypto startups to participate in India’s regulatory sandbox? Let us know in the comments section below.


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