The Securities and Exchange Board of India (SEBI) highlighted that the decentralized nature of crypto assets makes regulatory enforcement of this asset class challenging. The regulator told the Parliamentary Standing Committee on Finance that there is a great likelihood of execution of unauthorized trades not in consonance with any regulatory framework.
The SEBI emphasized the need for clarity about whether digital assets are securities. It believes there is a need for feature-based characterization of the tokenized version of the assets if crypto assets are not banned. This may draw in the supervision of different sectoral regulators. SEBI said there could be more than one regulator for crypto. Different aspects of the vast crypto industry could be overseen by various regulators.
It also pointed out that consumer products should be protected through the Consumer Protection Act. The Reserve Bank of India under the Foreign Exchange Management Act (FEMA) could also step in. According to SEBI, a digital currency acts as a bridge between the fiat currency of the foreign jurisdiction and the Indian rupee. The stock exchanges regulated by SEBI cannot trade digital assets without declaring it as securities. A stock exchange, as per Section 2(j) of the SCRA 1956, can only provide for assisting, regulating, or controlling the business of buying, selling, and dealing in securities.
As such, the SEBI had proposed several measures to the Advertising Standards Council of India, most recently banning celebrities and public figures from endorsing crypto products.
It should be noted that the Government of India has yet to introduce a regulatory framework to oversee the crypto sector in the country.