A leading Indian law firm Finlaw Associates along with the Estonian Crypto Association recently announced its intention to file a representation with the Indian government regarding cryptocurrency regulations in the country. The representation will be submitted to the Government of India’s Ministries of Finance and Legislation by the last week of February 2021.
Currently, the lack of clear regulation for the cryptocurrency and blockchain sector has created many uncertainties for the community. So far, the government has taken an ambiguous stance on cryptocurrencies and the blockchain sector as it publicly claims to use blockchain technology for governance, while avoiding the cryptocurrencies that make the distributed ledger operational in the first place.
According to Adv. PM Mishra, the Managing Partner of Finlaw Associates, the proposed representation by regulators will include a document that is more or less focused on regulation related to the existing FEMA law, SEBI guidelines for securities, CIS (Collective Investment Scheme), RBI , Income Tax and GST.
In his words, Mr. Mishra answers some questions that are common in the cryptocurrency community of the country.
Ask: Why did Finlaw Associates consider submitting such a proposal? What is his need?
Adv. Mishra: We all know the idiom, “Ignorance is bliss,” which may be true for some, but ask anyone in commerce or finance and they will make it abundantly clear that “Ignorance is a risk.” Every market embraces reasonable regulation to ensure transparency and fairness, but when it comes to the emerging fourth asset class – cryptocurrencies, there is no single regulator in India. Such a situation has created an atmosphere of uncertainty and confusion.
In the absence of clear regulation for cryptocurrencies and blockchain technology, companies in the industry are being impacted, innovation stunted, and the ensuing lack of accountability has encouraged cryptocurrency-related fraud and Ponzi schemes to thrive.
If India is to emerge as a wise leader that encourages innovation, entrepreneurship and derives maximum benefits from crypto and blockchain technology, it must lead the way with a balanced regulatory framework for the industry.
Ask: How Is India Losing Due To Lack Of Crypto Regulations? What is its impact on innovation?
A: Without clear regulation, cryptocurrency innovation in India will be suppressed. Entrepreneurs sit on the sidelines for fear of innocently breaking the law, while investors are reluctant due to uncertainty about valuations. Meanwhile, India will suffer as other countries lure away innovators by enacting rules that make their jurisdictions more favorable to cryptocurrencies. The government also risks fraudulent cryptocurrency suppliers driving out the good.
Aside from the intellectual brain drain and fraudulent activity, clear crypto regulations also encourage more people to adopt cryptocurrencies, increasing the number of transactions. It, in turn, creates the potential to generate additional income in the form of both direct and indirect taxes without burdening the community.
Ask: What’s new in your proposal? How is it different from other proposed things in different countries?
A: In contrast to the draft crypto regulations previously drawn up, we ask the government to ensure sufficient participation from all stakeholders. In our proposal, we encourage the creation of a self-regulatory body to promote and enforce standards within the cryptocurrency community. At the same time, an inter-institutional working group should be convened with representatives of the crypto community to harmonize existing regulatory practices and develop formal policies on cryptocurrencies.
We believe it is important to keep the general public informed about crypto regulations, especially since the whole premise behind the creation of cryptocurrencies is decentralization and democratization of finance. By issuing a public notice on the proposed rule for cryptocurrencies, the government should receive comments from the public and, if necessary, make the necessary changes based on the feedback received.
The government must also officially recognize the importance of decentralization and use it as a basis for determining whether a cryptocurrency is a security or not. Usually any cryptocurrency with the highest levels of decentralization does not qualify as a security.
These steps will help promote order, consistency and accountability within the crypto market without imposing unnecessary burdens. It will also help India as a country emerge as a wise leader in cryptocurrency regulation, driving entrepreneurship and innovation in this country. After all, wisdom – more than ignorance – is a truer form of bliss.
Likewise, changes to the income tax and GST laws would clarify the applicability of tax and finally the Indian Penal Code (IPC) along with IT law would recognize specific acts as crimes to impose penalties.
Ask: Do you think cryptocurrencies will become the money of the future?
A: Cryptocurrencies are increasingly recognized as a medium of value exchange in many countries, with some governments even allowing their citizens to pay bills and taxes with them. It’s only a matter of time before bitcoin and other cryptos are universally accepted.
The emergence of neo-banks means that all banking activities are gradually going online. It also offers a lot of flexibility and a strong use case for using cryptocurrency in banking – an opening for digital assets to get into mainstream finance.
The resilience of cryptocurrencies is evident in the way BTC bounced back from the COVID situation around the world. At the same time, other countries, including China, are showing more than expected interest in crypto as they work to shape the future alternative economy. The ongoing race is more the reason for India to jump in and not be left behind.
Ultimately, what we want to convey is that our country is in dire need of fintech regulations related to crypto, AI, blockchain and more to stop operators of Ponzi schemes, cybercrime and financial terrorism as a whole.
Mr. Mishra can be reached at [email protected] or + 91-9820907711