Crypto Or Digital Tokens Should Be Treated As Securities Of Special Class, Says CII

The industry body has said centralised exchanges and custody providers that could be established in India

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New Delhi: The Confederation of Indian Industries (CII) on Thursday in a statement said that crypto or digital tokens should be treated as securities of a special class, which means the provisions of exiting securities regulations will not apply, and a new set of regulations appropriate to the context 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), it said.

According to PTI, the industry body has said centralised exchanges and custody providers that could be established in India. Those exchanges must be required to register with the Securities and Exchange Board of India (Sebi) and to adhere to KYC and AML compliance requirements that apply to financial markets intermediaries, it said, adding they should be held legally accountable and liable for the safekeeping of the crypto/digital tokens held by participants in digital wallets offered by them.

“To support this obligation, centralised 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 said.

It is to be noted that the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, has been included in the Lok Sabha Bulletin-Part II for the introduction in the ongoing winter session.

The Bill proposes to create a facilitative framework for the creation of the official digital currency to be issued by the Reserve Bank of India (RBI), the Bulletin said.

It also seeks to prohibit all private cryptocurrencies in India, however, it allows certain exceptions to promote the underlying technology of cryptocurrency and its uses.

The chamber also recommended extending the treatment of crypto/digital tokens as securities' of a special class with regard to income tax law and GST law.

Crypto/digital tokens can be considered as capital assets' for income tax purposes unless specifically treated as stock in trade' by a participant/ assessee, it said.

It is also recommended to impose tax reporting requirements on participants who are investing or dealing in crypto assets (whether through a centralised crypto exchange or otherwise) through specific disclosures in income tax returns.

The regulators and tax authorities must commence capacity building to harness the power of big data and analytics for surveillance of the digital trail embedded in the block-chain network on which digital/cryptocurrencies/ assets run, the chamber said.

To safeguard the Indian public interest, the legal power to issue a crypto/digital token of Indian Rupee should be limited to Central Bank Digital Currency (CBDC) issuance by the RBI.

Alternatively, it said, if such issuance by any institution other than the RBI is considered acceptable, such issuance must be subject to the prior RBI approval, which must be conditional upon compliance with stringent prudential norms of holding assets mostly in credit-risk free, treasury bills/short duration sovereign securities.