Cryptocurrency: Willing to accept stricter regulations; ambiguity impacting growth: Crypto exchanges

Synopsis

In most cases, the industry wants the government to regulate cryptocurrency exchanges rather than regulating the crypto asset per se, said a lawyer who has made one such representation.

The exchanges are worried that the regulatory ambiguity will hamper their growth in the coming months as many serious investors may stay away from the asset class.

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Cryptocurrency companies have put forth several proposals for regulating cryptocurrency, ranging from making exchanges responsible for any money laundering or other regulatory concerns to differentiating between different exchanges based on their net worth and technology.

In a spate of recent meetings between some crypto exchanges, their advisors and government officials, exchanges also said they are willing to comply with all government guidelines regarding asset and liability management (ALM), know your customer (KYC), and Combating the Financing of Terrorism (CFT) to prevent criminals from misusing the exchanges, industry insiders said.

In most cases, the industry wants the government to regulate cryptocurrency exchanges rather than regulating the crypto asset per se, said a lawyer who has made one such representation.
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Jaideep Reddy, leader, technology law, at law firm Nishith Desai Associates, said, “Regulators could make exchanges responsible and ask them to follow KYC and AML practices similar to what we have for NBFCs and banks.”

Exchanges said they already have a basic code of conduct in place and are open to either the Reserve Bank of India (RBI) or market regulator Sebi regulating them.

The exchanges are worried that the regulatory ambiguity will hamper their growth in the coming months as many serious investors may stay away from the asset class.

“Many exchanges have even asked for a basic net worth eligibility for exchanges and broker platforms to register with the government,” said the CEO of a crypto exchange who requested not to be identified. “Exchanges claim that the government could come up with a framework in the upcoming budget that will essentially make exchanges responsible for any money laundering, KYC, or other regulatory issues.”

Several finance ministry officials, the RBI, tax departments, and investigating agencies including the Financial Intelligence Unit have raised concerns about how, in their current form, cryptocurrencies are a “systemic risk” not just to security but even to the Indian economy, as ET reported earlier.

Officials have also raised concerns over how cryptocurrencies are used and, in the case of a law allowing them to be used for “illegitimate untraceable transactions”, this could “substantially reduce regulatory effectiveness”

Last week, the Directorate General of GST Intelligence, an investigation arm of the indirect tax department, conducted searches on several crypto exchanges and asked them to pay goods and services tax on their transaction fees or margins.
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Updated: 01/08/2022 — 07:00