House panel bats for interim crypto self-regulation under RBI/SEBI oversight, stresses investor protection norms

A self-regulatory organisation (SRO) may serve as an interim mechanism till India has a law to govern cryptocurrencies. Such an SRO should operate under the oversight of one of the regulators, according to a Parliamentary panel report submitted this week.

While crypto profits and deals are taxed, and crypto trading platforms share transaction data with the central anti-money laundering agency, no dedicated statute or regulatory framework exists for crypto.

The Standing Committee on Finance (2025-26) has recommended that the government should comprehensively examine the need for an appropriate statutory and regulatory framework for Virtual Digital Assets (VDAs), which include cryptos, non-fungible tokens, and decentralised finance (DeFi) tokens.


"The crypto industry is probably in favour of an SRO. However, given unique risks involving money laundering, terror financing, borderless transactions, stablecoin-based dollarisation, and tax evasion, it's important that at least one of the central regulators like RBI or SEBI maintains serious oversight," said a senior industry person.

With international organisations like the Financial Action Task Force (FATF), Bank for International Settlements (BIS), and IMF having warned about these risks, many consider strong sovereign crypto regulation a national security necessity. Industry self-regulation can thus only be a temporary exercise.

The proposed SRO framework, said the committee, should prescribe minimum standards of governance, transparency, disclosure, investor protection, grievance redressal, compliance with prescribed codes of conduct, and appropriate regulatory oversight, so as to mitigate risks arising from a regulatory void.

The collapse of FTX, which was one of the world's largest crypto exchanges with operations in the US, in November 2022, brought to the fore how misuse of customer funds can cripple a crypto house. In the absence of regulations, crypto platforms may have extensive control over customer assets.

"Customer funds must be legally segregated from company funds and regularly audited by the Government of India, because collecting crypto taxes while ignoring custody and consumer protection may leave investors dangerously exposed," said another person.

Given cross-border movements of cryptos, the rules laid down by an SRO could address the interplay between the crypto industry and the Foreign Exchange Management Act (FEMA). Recent action by the Enforcement Directorate has highlighted how inward and outward remittances of cryptos, even for legitimate purposes, may end up violating FEMA.