Crypto Exchanges may Need Licenses

New Delhi: Cryptocurrency exchanges may be required to seek licenses from the designated regulator, as is the case with equity and commodity trading platforms, to ensure full oversight of the digital assets, said an official with knowledge of the matter. The will be subject to net-worth norms and have to meet ‘fit and proper’ criteria like other exchanges under the proposed law, the person said.

The government has listed the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, for introduction in the ongoing winter session of Parliament.

The cabinet is yet to take up the bill for approval.

“Crypto platforms would need to meet eligibility criteria like minimum net worth, governance guidelines, and they also need to present a business plan to satisfy the concerned regulator about long-term sustainability,” the official said. These points have been discussed with regulators and other stakeholders, the person said. Several platforms such as CoinDCX, WazirX and Zebpay facilitate trading in cryptocurrency.

Under the regime being considered, existing crypto exchange would be given time to comply with the eligibility norms. Stock exchanges such as the National Stock Exchange and the BSE could also be allowed to have separate crypto segments, much like the commodity and currency windows they have now, the official added. Further, the crypto platforms registered with the designated regulator would have to ensure know your customer (KYC) requirements.

They would also have to establish disclosure mechanisms to prevent money laundering and other illicit activities such as terror financing, the person said.

The regulations may also prescribe minimum threshold for investment in such virtual assets to protect small investors.

Currently, the Securities and Exchange Board of India (Sebi) regulates all types of trading in the financial and commodity markets. Cryptocurrencies are expected to be defined as virtual assets and settled in cash, said the person cited above.

While the government has considered a separate independent regulator, the view gaining ground is that cryptocurrencies, being a complex asset, should be overseen by multiple regulators or at least by an established regulator like Sebi, said people familiar with the matter.

Settlement guarantee funds would be needed to mitigate the risks of possible default, an expert said.

Stock exchanges currently have to transfer a portion of their profit to a core settlement guarantee fund under Sebi norms.

This option could be explored for crypto players as well, the expert said.

The government  is also understood to have deliberated on the possibility of having a centralized ledger system instead of a distributed ledger to keep records of each trade. The crypto exchanges would be asked to maintain such a database on a real-time basis to keep a check on wallet owners, said one of the persons cited above.

An applicant stock exchange would have to be set up a limited,  demutualised company. Directors and shareholders who hold or intend to hold shares would also have to meet the ‘fit and proper’ qualification and the entity would have to satisfy requirements relating to ownership and governance structures specified under  the regulations, said the official. S-ET

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