In an effort to provide recommendations to Indian policymakers, Ripple, a US-based technology company popularly known for its involvement in using blockchain for international fund transfer, released a policy paper titled ‘The Path Forwards for Digital Assets Adoption in India’ (the policy paper).[1] Ripple has been at the forefront for providing comments or recommendations to financial institutions and even governments of countries such as Canada, the United States, the United Kingdom, Australia, etc. The recommendations to the Indian policymakers with regards to ‘digital assets’, are provided in the backdrop of the recent Indian Supreme Court’s historic verdict in the Internet and Mobile Association of India (IMAI) v. Reserve Bank of India (RBI).[2]
In the policy paper, Ripple describes the framework governing digital assets to be technology agnostic, principle-based, and risk-adjusted. We have provided an overview of the policy paper by focussing on four recommendations as provided by Ripple:
a) it recommends the government to adopt a digital asset taxonomy consistent with global practices. Irrespective of whether the government decides to ban cryptocurrencies, the author believes that the government should and must have their digital assets taxonomy consistent with global practices to ensure uniformity in the usage of terms, especially when the subject at hand is so complex. But moreover, it would give stakeholders a better definition of the term ‘cryptocurrency’ than what is adopted by the policymakers in the Draft Banning of Cryptocurrency and Regulation of Official Digital Currency Bill, 2019. (The definition is extremely vague. If it were to be challenged, the courts would rule against the government, merely based on the definition itself);
b) it recommends the government to facilitate a legal framework for the digital service providers ecosystem at the Gujrat International Finance Tec-City (GIFT City). Again, even if the Government decides to ban cryptocurrencies, such a framework would not harm its plans. It would boost the morale of stakeholders since they would have the option to shift to the GIFT City and continue developing their projects for the global audience. This would also ensure that majority of the blockchain talent remains in India whose potential could be harnessed for non – crypto projects throughout India;
c) it recommends the government to open up the ‘regulatory sandboxes’ for crypto projects so that the value proposition in the Indian context could be tested. The regulatory sandbox would only be useful when the RBI decides to remove crypto assets from the ‘negative value’ aspect from entering into the regulatory sandbox. This is primarily because of the stringent criteria adopted by RBI to be eligible to participate in the sandbox. Further, even if cryptocurrencies are permitted in the sandbox, six months is too little a time to test the effectiveness or usefulness of cryptocurrencies. The apex regulator may not appreciate the crypto project or deem it fit for public use, even if the testing on a sandbox is permitted.
d) it recommends the government to amend financial sector laws for creating a facilitative framework for digital assets. This includes making changes to regulations framed by the Securities Exchange Board of India (SEBI) and RBI. However, the more important question for the government is which regulator would have the jurisdiction to regulate cryptocurrencies or digital assets? Would it be SEBI or RBI? Or would it be a completely new independent body?
While Ripple has published the policy paper, nothing much can be said until the position is clear from the finance ministry concerning the note (facilitating ban on cryptocurrencies) that was passed earlier (Access here). However, given the ambiguity of regulations in the industry right now, some implementations can be taken ahead of the policy paper. We also believe that precedent can be accorded from countries such as Gibraltar, Cyprus, United Arab Emirates, and Japan, which have facilitated the advancement of blockchain businesses through comprehensive regulations.
By- Mayank Takawane with inputs from the W-Investment team
[1] Ripple, Policy Framework for Digital Assets in India. Available at- https://ripple.com/wp-content/uploads/2020/06/Ripple-Perspective-The-Path-Forward-For-Digital-Asset-Adoption-In-India-June2020.pdf.
[2] Writ Petition (Civil) No. 373 of 2018.
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