This year looks like a crucial one for cryptocurrency from regulatory perspective. Bitcoin will now be a legal tender in El Salvador. G7 recently discussed about stablecoins. In USA, states like Nebraska and Texas are at various stages of enacting laws regulating digital assets. In India, a bill to completely ban bitcoin and crypto assets and introduce central bank digital currency was proposed, the government however had to change its mind. Since the field is currently unregulated in India, a bundle of regulations and statutes are anticipated to be issued. Earlier the central bank, in its circular on April 6, 2018, had prohibited banks from dealing in cryptocurrencies or offering any service facilitating any person or entity in dealing with or settling virtual currencies. The circular was challenged in the Supreme Court, which set aside the circular on the ground of proportionality vide order dated March 4, 2020. Let’s map the important events happened this year and understand the stand of the Government and the authorities:
- January 30, 2021
The Government proposed a bill to create a facilitative framework for creation of the official CBDC to be issued by the Reserve Bank of India. Additionally, the bill sought to prohibit all private cryptocurrencies in India, however, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses.
- February 9, 2021
The Minister of State for Finance, Anurag Singh Thakur stated that the Government is in the process of finalising the bill banning cryptocurrency which will be sent to the Union Cabinet.
- February 22, 2021
The Securities and Exchange Board of India informally told promoters to square their crypto-currency investments before they launch an initial public offer or other capital raising instruments.
- March 8, 2021
Anurag Singh Thakur during a webinar stated that the Government will adopt a ‘very calibrated approach’ towards crypto-currency regulations.
- March 10, 2021
The Internet and Mobile Association of India (IAMAI) appealed to the Central Government not to ban cryptocurrency and proposed that robust mechanisms should be developed to regulate the ecosystem.
IAMAI published white-paper on Blockchain Technology and its Industry Adoption
- March 15, 2021
Finance Minister Nirmala Sitharaman clarified that there will not be a complete ban on cryptocurrencies or at least the technology part of it and that certain windows for people to do experiments on blockchain, bitcoins or cryptocurrency will be allowed.
- March 22, 2021
News reports floated about the Government considering blocking the internet protocol (IP) addresses of prominent crypto-currency exchanges after a three to six month moratorium window for investors.
- March 23, 2021
Anurag Singh Thakur in response to a question that whether the Government is currently collecting income tax on crypto earnings and also whether GST is collected from crypto exchanges answered in the Parliament that the Income Tax authority will tax capital gains on crypto-investments and the GST authority will tax fees earned by the exchanges.
- March 25, 2021
The Ministry of Corporate Affairs issued notification amending company financial disclosure rules mandating companies to disclose crypto-holdings, investments and funds received from end investors
- May 4, 2021
Leading private sector banks started shutting accounts and payments channels for crypto-exchanges since as per reports RBI informally urged the lenders to cut ties with cryptocurrency exchanges and traders as dealing in such business is ultra speculative.
- May 7, 2021
The IT industry body IndiaTech.org through its white paper on framework to regulate crypto in India recommended that the Government should enact traceability provisions as part of crypto – currency regulations to bring in more clarity over various aspects related to cryptocurrency investments, taxation, transaction traceability and money laundering.
- May 16-18, 2021
Crypto-exchanges face bank and payment issues since private banks such as ICICI and Axis bank openly made statements that they consider crypto investments risky and have stopped giving services to crypto exchanges. The same led to stopping of fresh investor deposits
- May 31, 2021
The Reserve Bank of India(RBI) issued a notification informing banks that they cannot warn customers against trading in bitcoin and virtual currencies using its old notification since the same was set aside by the Hon’ble Supreme Court order dated March 04, 2020. It suggested that both banks and crypto platforms need to make sure that these transactions are not used for fraudulent activities and tax evasion and asked the banks to carry out necessary customer due diligence process in line with regulations governing standards for Know Your Customer (KYC), Anti-Money Laundering (AML), Combating of Financing of Terrorism (CFT) and obligations of regulated entities under Prevention of Money Laundering Act, (PMLA), 2002.
- June 3, 2021
HDFC Bank retracted from its statement and officially asked customers to ignore its previous communication warning them about dealing in cryptocurrency transactions.
- June 4, 2021
RBI Governor Shaktikanta Das stated that there is no change in RBI’s position and it has major concerns around cryptocurrencies, which RBI has conveyed to the Government.
- June 11, 2021
The Enforcement Directorate as per its press release initiated proceedings against crypto exchange WazirX for contravention of Section 3(a) of FEMA, 1999 for transactions involving crypto-currencies worth Rs. 2790.74 Crore.
India is the second biggest bitcoin nation in Asia, after China, and the sixth biggest in the world, after the United States, Nigeria, China, Canada and the United Kingdom. With the authorities evincing a positive approach, it is very unlikely that there will be a blanket ban on the cryptocurrency. However, since the field is currently unregulated, it is important for the exchanges to strictly follow standards for KYC, AML, CFT and obligations under Prevention of Money Laundering Act, 2002, to avoid unethical use of their platforms by traders of the new age currency.
The author is a dispute resolution lawyer based in Mumbai. She can be reached at [email protected] Crypto Vakil team has done minor edits.