India trade association, CII wants crypto to be considered ‘securities of a special class’

India’s ongoing regulatory uncertainty regarding cryptocurrencies, has led to widespread FUD in the sector. However, another side of the regulatory narrative has come to the fore amid these circumstances.

The Confederation of Indian Industries (CII) proposed that cryptocurrencies and other digital assets be designated as ‘securities of a special class,’ according to local media. The special status should allow cryptocurrencies to be exempt from current securities regulations. Furthermore, the CII noted,

“Instead, a new set of regulations appropriate to the context of crypto/digital currencies and their jurisdiction-less, decentralized character, should be evolved and applied. This would mean regulatory focus principally on dealings and custody, rather than on issuance (except where issuance entails an Initial Coin Offering (ICO) to the public by an issuer established in India).”

The CII also recommended that centralized exchanges and custody providers should be established in India. Further, they should register with the Securities and Exchanges Board of India (SEBI) and follow the existing KYC, AML compliance requirements that already apply to other financial intermediaries. It further stated,

“They should be held legally accountable and liable for safekeeping of the crypto/digital tokens held by participants in digital wallets offered by them. To support this obligation, the centralized exchanges may be required to maintain minimum capital and guarantee fund while complying with investor disclosure requirements which are prescribed by regulations from time to time, with respect to trading and investment risks.”

It should be noted that if passed, India’s cryptocurrency bill will bring uniform KYC obligations and procedures across all cryptocurrency exchanges. This would include sharing data of users with various government agencies and regulators, as per media reports.

Meanwhile, the CII recommendations also delved into tax requirements regarding crypto assets. Firstly, it recommended that the ‘special’ designation for digital tokens should be extended to include their income tax and GST requirements.

Moreover, it said that digital assets can be considered as ‘capital assets’ for income tax purposes unless specifically treated as ‘stock in trade’ by a participant. In addition to that, it recommended that tax reporting requirements be imposed on all entities investing or dealing in cryptocurrencies through specific disclosures in income tax returns.

Notably, India is seeking to regulate the industry through its cryptocurrency bill for which it is considering appointing its capital markets regulator. Tokens are expected to be called ‘crypto assets’ since they will be categorized as financial assets.

A deadline will reportedly be given to crypto investors to declare their holdings and comply with the new rules. However, reports that those violating the rules could be fined as much as 200 million rupees ($2.7 million) or imprisoned for 1.5 years, have fanned the (FUD) flames.

Regulatory clarity is of the essence, not just in India, but around the world. How soon regulators deal with this challenge, remains to be seen.