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Sebi, RBI plan to bring digital gold under regulatory ambit

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The Ministry of Finance, the Securities and Exchange Board of India (Sebi) and the Reserve Bank of India (RBI) are working to put digital gold, as well as crypto assets, under some regulatory oversight, as concerns grow in the face of the uncontrolled growth of these investments. without the investor protections that apply to regulated securities.

The government plans to tackle issues of transparency, outrageous claims and lofty promises made by some companies in unregulated assets to attract investors.

As part of the plan, the government could amend the Sebi Law and the Securities Contracts Regulation Law to classify digital gold as security, two officials with direct knowledge of the matter said, under cover. of anonymity.

Prime Minister Narendra Modi chaired a meeting with regulators on Saturday on deciding a long-term strategy for crypto assets. This follows the Standing Committee on Finance meeting held on Monday with stakeholders to hear their views on “the opportunities and challenges associated with crypto-finance.”

Mint reviewed a copy of the opinion issued by the standing committee for dialogue with associations and industry experts on crypto. Questions emailed to Sebi and the Ministry of Finance about oversight of digital gold did not receive an immediate response.

The proposal to regulate assets comes after Sebi in September and October banned registered brokers and investment advisers from offering digital gold and other unregulated investment products. The regulator said offering such products was a violation of Sebi Law and, therefore, could result in financial penalties and, in some cases, license revocations. Some fintech companies selling digital gold have had to stop these sales even as others have moved away from offering digital gold to their unregulated parent companies.

Some companies were offering digital gold as an investment product to attract clients reluctant to invest in equity-related products.

The ban opened up an opportunity for arbitration, with RBI regulated entities and unregulated companies able to offer digital gold without any penalties. “There is clearly regulatory arbitrage. We never sold digital gold because we thought it was not a good product and not because of anything else, ”said Nithin Kamath, Managing Director and Founder of Zerodha, a financial services platform.

Sebi is in talks with the government to classify digital gold as headlines in the next budget. “The only way around this problem is for digital gold to be qualified as securities by an amendment to the Security Contracts Act (SCRA) and the Sebi Act. Then digital gold would become regulated and all registered investment advisers, brokers and connected entities would be able to offer digital gold, ”said the first of the two officials cited above.

“Basically all gold trading on the exchanges is under us anyway, so digital gold isn’t much of a stretch. Sebi has no concerns in regulating digital gold but requires an amendment to the Sebi Law and tie it to the gold exchanges. Currently, digital gold is offered in a regulatory vacuum. Our circular is essentially aimed at restricting regulated entities, ”said the second official.

The government is in the process of setting up regulated gold exchanges under the regulation of Sebi. The regulator has already approved the framework for the operationalization of gold exchanges, which would facilitate gold trading through electronic gold receipts. While issues with digital gold may be resolved by the next fiscal year, differences between RBI and Sebi over who should regulate crypto assets persist.

“Sebi doesn’t think they have systems in place to ensure crypto settlement because there is no underlying asset to settle, and RBI does not want to go into a product that is traded / settled. More so, RBI is grappling with a 2020 Supreme Court ruling on crypto regulation. Only the Ministry of Finance can find a solution, ”said the chief official. The Ministry of Finance is working on a bill to regulate crypto and its taxation.

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