Parliament Panel Urges Regulatory Framework For Virtual Digital Assets

The Parliamentary Standing Committee on Finance has recommended a comprehensive examination and a new regulatory framework for Virtual Digital Assets (VDAs). In its report on the Securities Market Code, the panel highlighted an existing regulatory vacuum that exposes millions of users to fraud and market manipulation. The committee emphasized that the new rules must prescribe minimum standards for governance, transparency, and investor protection. Currently, VDAs like cryptocurrencies are only subject to limited regulation for taxation and anti-money laundering purposes. This proposal seeks to bring clarity to a sector that has operated in a legal grey area for years.

The panel suggested introducing an interim regulatory mechanism through recognized Self-Regulatory Organisations (SROs) while a formal legislative framework is drafted. These SROs would operate under the oversight of a designated regulator to ensure market discipline and grievance redressal. According to data from Chainalysis, nearly 12 crore Indians are active participants in the VDA ecosystem. The committee noted that the absence of a clear legal regime undermines investor confidence and creates opportunities for regulatory arbitrage. By establishing these interim standards, the government can mitigate risks to retail investors and maintain the integrity of the broader financial markets.

Establishing a robust regulatory regime for crypto assets will require significant coordination between domestic and international agencies. The committee explained that VDAs were excluded from the proposed Securities Market Code because they do not satisfy the legal characteristics of traditional securities. However, this exclusion creates a regulatory grey area that necessitates a dedicated legislative approach. The Centre admitted to the panel that such assets currently lack oversight beyond basic reporting requirements. Moving forward, the government must balance innovation in blockchain technology with strict safeguards against financial crimes to protect India's economic stability and its digital-first population.